The long oil/short equity trade has been gravy for speculators since the summer (see chart, "Stocks Crudely Played?"). From mid-June, West Texas Intermediate (WTI) crude rose 40 percent while the Dow Jones Industrial Average (DJIA) fell 4 percent.
Then a short-covering rally sent stocks soaring Tuesday, finishing Wednesday in a cumulative 546-point, or 4.2 percent, upswell. Crude, meanwhile slumped seven bucks - and 7 percent - to $90-and-change.
Two days don't make a market. A lot of the stock market's buoyancy arose as the tea leaves from Federal Reserve Board vice chair Donald Kohn's recent remarks were read to mean "rate cut." Rate cuts themselves have transitory effect, much less talk of rate cuts. Think back to the last time the Fed nudged interest rates lower. Equities rallied for a couple of days, then tanked.
Closes above Dow 14,000 are going to be needed to establish support for a bull run.
And for crude? Support's been established at $90. Resistance remains at $99. It's true that crude's lost some of its bullishness. Some might even say it's oversold, so traders could well use the current pullback as a buying opportunity. Volume is, however, trending lower - a bearish sign, so better buying opportunities may yet await.