A Summer Maze of Sorts

The crude oil weakness yesterday truly brought to surface some glaring divergences, insofar as emerging markets and most energy stocks holding the line green even when you would have thought a sinking commodity would be bringing them to their knees. 

But navigating this maze yields an interesting result this morning, as USO rallies back above $10.80 amid emerging markets and the OIH (oil services ETF) gapping up sharply. 

Another piece of the puzzle is TLT, as many fund managers typically view a macro trade comprised of either a bull Treasuries/bear crude view or vice versa. As a result, with USO bouncing back we are seeing TLT gap down from a rare Island Top Reversal on the daily timeframe. 

All of these twists and turns inside the maze make for interesting analysis. But as far as trading we are looking to see if the move in energy has legs now. If so, then a stock like Schlumberger,below on the daily chart, becomes viable over $80 as a long to play for a sustained breakout in energy stocks are the recent scare in Black Gold proved to be overblown. 

And to gauge the veracity of that last statement, the $10.80 level on USO remains the crucial dividing line.