In the past few weeks we've witnessed the disparity between the runaway price of crude oil and the sagging U.S. dollar index. Both are now at critical points along their dominant interim trend channels and both are nearing potential turning points, short-term.

With oil, the potential for an upside "channel buster" is visible in the chart (as we'll discuss below). With the dollar, the channel buster occurred earlier last month as the dollar index surged above the upper boundary of its interim uptrend channel boundary as shown in the chart below (see circled area).

It was here that the dollar exhausted its impressive upside run from the January 2005 low to the July high. Since that time the dollar has pulled back to test the lower boundary of its uptrend channel at the 86.50-87.00 area. Now that a secondary test of this area is underway, the question is whether the dollar's latest slide will halt above the uptrend line or break below it. Wave form and momentum studies suggest the dollar will at least find temporary support above this lower channel boundary and could rally back up to the 89.00-89.50 area before encountering further strong resistance. It will be imperative to monitor the dollar in the coming days as its next directional signal will provide insight into a number of financial markets.

In last week's commentary on the oil market, I noted that "the upside momentum behind the rise [in the crude price] has been impressive to say the least with further upside potential in to the $68-$70 area a good possibility." With the passage of eight days we've seen oil since pull back and creep right back up toward the $68 level, which happens to be about where the upper boundary of a 9-month uptrend channel intersects in the daily chart (see below).

What does this mean for the oil price trend in the near term? Well it obviously opens up the possibility that an upside "channel buster" exhaustion move will transpire. Simply put, this is when the price pushes above the upper boundary of the uptrend channel temporarily, but in doing so exhausts itself and quickly pulls back inside the channel - sometimes to a sharply lower level. The upside momentum behind the oil price is still strong, so I doubt a pullback to the lower channel boundary is in order anytime soon. But with a little imagination you can see oil butting up against that resistance between the $68-$70 area in the next few days before pulling back inside the upper channel boundary in a rounding-over fashion. I've circled in the above daily chart where I think resistance is likely to be greatest and where the "channel buster" could occur.

It's time for oil to "correct" the recent run-up and with the enormous increase in political attention being paid to the oil market, the market makers may feel the time is right to give it a rest for a while. We'll soon find out.

Here are some of the headlines to come out in the past few days: "Equities stagger beneath heavy weight of oil," "Investors still wary of oil's next move," and, "Get used to oil at $60 a barrel, says Goldman [Note: Remember the last time Goldman made a headline-making oil forecast the crude price made a temporary top]. Recently the Financial Times ran the following headline on the front page in bold print: "Oil fuels world economy fears." This is a preliminary signal that the market has reached the proverbial bubbling over point and should be near a short-term top.

Oil-related fear talk has reached a fevered peach. Even Wal-Mart has been harping about the negative impact that the higher petroleum prices have had on its retail business, and when Wal-Mart speaks everyone listens.

Speaking of the oil situation, I've been lately reading a newly published book by Gregory Pahl entitled "Biodiesel: Growing a New Energy Economy." The folks at Chelsea Green Publishing were kind enough to send me a review copy and I've been reading intently since receiving it. Despite the somewhat technical nature of the subject, it's a fascinating read interwoven with insights and stories from some fascinating figures behind the growing movement to provide alternatives to petroleum-based fuels from a variety of feedstocks, including palm, canola and cottonseed oils as well as corn, soybeans and algae. I'll have a full review of this book in the very near future, but I've already read enough of the book to recommend it to those interested in the issue of alternatives to oil and gas.