Archive for June, 2009

The CRB Index Is Ready To Advance…Again!

Posted in CRB Total Return Index (CRB) on June 28th, 2009 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

After a few weeks of “fits and starts”, it appears that the CRB index and its underlying commodity components are in position to extend higher again. An end-of-the-quarter weakening of the dollar index may well be the culprit here. Despite a rather well received “mini” Treasury refunding last week, the greenback slid lower in the wake of rekindled references to the need for a new reserve currency by foreign holders of U.S. debt.

From a technical perspective, a bullish reverse Head & Shoulders pattern that targets a move up to the 292 area on the CRB index has been formed. A much needed break above key “neckline” resistance at 245 and a subsequent “retest” of that level has already occurred as well, putting daily technical studies into a new bullish configuration.

The recent rise in commodity prices, of course, has helped to firm up a number of commodity-related stock valuations. Last week’s reversal in initial jobless claims, however, suggests that the rise in the CRB index may have less to do with an increase in final demand than with a decline in the dollar. A week-long slide in interest rates on U.S. Treasuries also tended to diminish demand for the dollar.

Still, commodity prices have experienced a “disconnect” with the balance of actual “supply and demand” issues in the past …as witnessed by the rally in 2008 which reached its crescendo last July. The current set-up for commodities is far from having anything resembling a fever pitch to it. Instead, it resembles a market that has been base building and getting ready for a renewed advance. It might be the anticipation of future demand that will tilt the balance toward commodity bullishness.


The Financial Sector May Be Setting Up For A More Pronounced Move Higher

Posted in Financial Select Sector SPDR Fund (XLF) on June 21st, 2009 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

One of the theories widely embraced by many fundamental analysts is that for the overall equity markets to improve in earnest, the financial sector must lead the way up. After all, it was the financial sector that dragged a huge portion of the equity markets down. Further, it is the area of the financial system that has caused credit to be allocated so judiciously of late and as a result represents the stability, or lack thereof, of the economy as a whole. Thus, it is the sector of the market that must lead the way and lift the overall market back to health.

Gloomier assessments of the economy point to the potential for future shocks to possibly derail the financial sector over the intermediate-term. Commercial real estate issues, another round of residential foreclosures, credit card defaults and chronic unemployment levels are all sited as potential potholes. That said, the equity markets tend to be a discounting mechanism and as such have likely priced in a lot of these deep dark scenarios.

From a technical perspective, the Financial Select Sector SPDR Fund, whose ticker symbol is XLF, appears to be basing out in the form of a bullish reverse Head & Shoulders pattern on daily bar charts. Although some technical studies suggest more downside price action is likely over the short-run, intermediate-term prospects look to be very bright by comparison.

At Friday’s close, the XLF stood at $12.04. The key to the bullish reverse Head & Shoulders pattern scenario playing out, however, would be for a solid break above “neckline” resistance (which is now at the $13.10 level) to occur. If that “breakout” happens, a more invigorating move up to the $21 area would likely follow. That, of course, could also trigger a more broad based recovery in equities and catch bears and those with idle cash off guard.