Oil has enjoyed a stellar run over the past three weeks. But if you buy now, you better exercise a great deal of caution.
Crude oil showed signs of continuing its surge into the close on Friday, recovering more than $1.50 from its lows to close at $106. However, the market was falling back once again Monday morning, after China reported its second-quarter GDP growth came in at a somewhat discouraging 7.5 percent. A solid retail sales number out of China—up 13.3 percent from the previous year—is tempering that bad news.
(Read More: China's economy slows for second straight quarter)
The dollar has been having a positive morning, and we are looking to see the Dollar Index cover the gap at 83.75. The major level to watch at the close will be 84, as a move up to here will put pressure on commodity prices.
As far as the trading of oil itself, $106.25 has been the level we've been watching closely. On Monday morning, crude was finding resistance at this level again, as the market has stalled out there for the second session in a row.
Crude traded 5 cents above Friday's high, and since the market is about a dollar from the highs, crude has a shot for an outside bearish day below $104.36. That level—just above $104—has consistently provided support, but I believe that if we retest it Monday, for the fourth session in a row, it will be the straw that breaks the camel's back.