Oil has now completed the test of the consolidation zone of a T1 move. I've been noting in the weekend updates for several weeks that the commercials have been reducing shorts into strength in the oil contracts. This is usually a very bullish sign if the big money has to cover into a rising market. It's sort of like throwing gasoline on the fire. That last time we saw something like this happen was in the gold market in late 05 and early 06.
Energy inflation is the fly in the ointment of the Fed's reflation attempt. As long as liquidity keeps leaking into the energy markets it's going to be tough for the markets to rally to new highs. On top of that it's just plain bad for the economy. If the rising price of energy continues to weigh on the economy eventually the stock market is going to have to price in the worsening economic conditions no matter how much liquidity the Fed continues to throw at it.