Oil down, stocks up. Can we look forward to more of this? Sure looks like it. Bids for crude got savaged yesterday, and although the decline left prices sitting above a key low near $51 recorded ten days ago, the support looked unlikely to endure. Once it gives way, look for the June contract to sink to at least 49.19, a hidden pivot that should turn things around, if perhaps for no more than a day or two. The behavior of the futures at that price can help us determine whether we’re witnessing a pause in a downtrend to as low as $46 over the near-term, or instead the last gasp of a correction enroute to $60 per barrel. To be more specific, any breach of the 49.19 pivot by more than 5-6 cents -- or, more bearish still, a close beneath it -- would strongly imply that still lower prices impend over the next four to six days.

(Click on chart to enlarge)

Would that be bullish for stocks, as yesterday’s decline seemed to be? Possibly, although to anyone inclined to see the glass as half-empty, the DJIA’s paltry 47-point rally wasn’t much of a celebration, even if buying was restrained by a horrendous durable goods report. Keep in mind that another few days like yesterday in the oil pits could conceivably turn our biggest air carriers profitable once again – and wouldn’t that be dandy news. Regardless, the Dow chart I reproduced in Wednesday’s Touts suggests that stocks are likely to rally over the near term no matter what happens to oil prices. The clue is in the subtle divergence between stochastic and price lows since late March. You can see in the chart above that the recent bottom near 10,000 got somewhat less oversold than the rolling bottom created by some minor-cycle lows in late March. This is not the sort of bullish sign on which we should bet the ranch, but it is nonetheless persuasive as a warning to shorts not to get too cocky.