Morning Update - SML,INDU,OOG,& OIH

The S&P 600 Small Cap Index (SML)- Daily chart
The daily SML chart illustrates that it is in a reverse symmetrical triangle (RST). As always, the general rule of thumb is, that higher highs are bullish even though this pattern itself is treacherous. The Aroon is in a bullish trend. The RSI on the daily chart is heading higher the stochastics are turning up in a bullish v pattern, and the williams% indicator is getting ready to go trending. Also notice that the SML has been holding it's moving averages nicely. It remains to be seen if this pattern will over shoot the upper trend line and turn into a continuation RST after the double E is put in. Do not let this pattern scare you out of the market and prevent you from trading. I believe that the SML is headed higher to put in a double E around the 400 area. In fact the SML may turn out to look like the DAX. It is important to keep an eye on the small caps because it is the one sector that continues to show leadership in the market and out perform it. The market rally continues to emphasize the small and mid caps, not the large caps.

Dow Jones Industrial Average (INDU) - Daily chart
The daily chart of the INDU illustrates that it is in a continuation diamond pattern. As you can see, the INDU broke the uptrend and has rallied sharply higher this week. Target remains 1350 and perhaps higher. The INDU has been parabolic this week. Furthermore, there are 2 types of patterns at play here; the diamond and reverse symmetrical triangle. We will have to wait and see which one plays out. As you can see, the Aroon just had a bullish cross this week, and indicators and oscillators are following suit.

ISE Oil and Gas Services Index (OOG)- Daily chart
We exited our oil and gas stocks at the end of January. The daily chart of the OOG shows that it has pulled back to the uptrend line and has held it going back to October 2005. To me that is significant. Consequently, I am starting to look at oil stocks again. Not any oil stock. I am looking at the following stocks: SU, CNQ, BRY, LSS, APA, and VLO. I am not interested in laggards when we are in a wave 3 to 4. If it did not make a new 52 week high in December do not buy it. My favorite picks are: SU, LSS and BRY. I am not giving the all clear yet.

Oil Services Holders ETF (OIH)- Daily chart
The daily chart of the OIH illustrates that is in a wave iii to iv pullback. Furthermore, the OIH could be in a wave 1 or wave 3 of the larger count. I believe the OIH is due for an oversold bounce. I think that the picks in this sector are becoming more select than ever before. Make sure you are playing quality names.