Proving Oil's Guilt

The rally in crude oil since February has often coincided with the improved price action in equities. The two have parted ways this week, however, with black gold taking a dive after this morning's inventory report, especially. 

Equites have ignored plenty of potentially bearish divergences of late, which means extrapolating the crude weakness as a short signal for stocks is likely premature, at least until we see actual evidence of stocks cracking (without dip-buyers quickly sealing those cracks, as they have done in the late winter months). 

Thus, focusing solely on crude on its own merits, if bears can reject oil beyond the reversal today, down off the key $10 level on the USO ETF (daily chart, below), I would be looking for a short entry. I suspect holding below $9.75 into the bell today would be sufficient action to test out a starter size short.

Note how the rising wedge (light blue lines) has been breached to the downside, and the attempt by bulls to reclaim broken trend support appears to be failing now. 

Also keep an eye on major energy player XOM to see if the reversal to red holds into the bell, as well. 

SCO DWTI are a few levered bearish crude ETFs to keep on the radar.