Archive for July, 2009

S&P 500 Breaks Above Key Resistance; Takes Aim At Another

Posted in The S&P 500 Index (SPX) on July 26th, 2009 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

Despite overbought conditions on weekly charts, a series of better-than-expected earnings announcements combined with a number of economic reports suggesting that the economic downturn is moderating helped lift the S&P 500 Index above key trend line resistance that stood at 959 last Thursday.

The knock on this quarter’s earnings numbers, however, is that in part they may have been achieved due to staff reductions in large, medium and small sized businesses across the board. Bears will argue that rising unemployment levels and reduced credit availability will limit domestic consumption and thus the upside for equities in the foreseeable future.

On the other hand, more bullish observers suggest that inventory reductions, rapid destocking of product lines combined with low interest rates and a weak dollar should help businesses increase margins and therefore earnings in the quarters just ahead.

From a technical point-of view, the S&P 500 Index is clearly in an overbought condition. That said, steady buying could keep equity prices edging higher despite the current overbought condition. In addition, Thursday’s break above resistance at 959 suggests that an extension up to the 1075 area, where another trend line resistance sits, may well occur before upside momentum subsides.

If it does, another battle between bulls and bears will likely occur near 1075. At that point, a reassessment of economic conditions might suggest that the market is ahead of itself, particularly in light of the fragile environment that global economies find themselves in.


The SOXX Index Getting Its Footing; Could Be In For A Run Higher

Posted in Philadelphia Semiconductor Index (SOXX) on July 19th, 2009 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

Following a robust rebound from the abyss experienced in March,
investors are in search of a leader or two in order to justify an
extension to the current equity recovery.

The financial sector has stabilized. Energy prices have too. Goldman
Sachs posted outsized earnings with the Bank of America and even
Citigroup coming in with better than expected numbers. This added to
the optimism despite warnings of an uncertain second half of 2009.
Still, it might well be the semiconductor sector that could offer
considerable interest to investors. After all, earnings announcements
from both Intel and IBM sparked hope that the economy may actually be
on the mend.

It is the Philadelphia Semiconductor Index (SOXX), however, that has
caught our eye from a technical point-of-view. Since its low that was
actually set last November (2008), it appears to have found its
“footing”. Several attempts to either “retest” or break below the
November low have resulted in buyers stepping in and scooping up
bargains with deeply oversold conditions present on long-term
(monthly) charts.

In retrospect, the November low appears to have defined an important
“channel bottom” that had been in development since October 2002 …in
the wake of both the “tech crash” and 9/11. During the past few months
or so, the SOXX index has tip-toed higher, almost quietly. That said,
it is now in the process of testing key trend line resistance at the
$290.66 level drawn off the July 2007 high.

A break above that level, if it occurs, would likely lead to an
extension up to key “mid-channel” resistance which currently sits at
$322. Although that level could produce a healthy tug-of-war between
bulls and bears, long-term technical studies are bullishly positioned.

A solid break above $322, if it occurs, could conjure up thoughts of
much higher levels, including an eventual test of “channel top”
resistance at $550.

First things first, let’s see whether a set of bullish reverse Head &
Shoulders patterns on Applied Materials (AMAT), National Semiconductor
Corp. (NSM), Maxim Integrated Products (MXIM), Altera Corp. (ALTR) and
Micron Technology, Inc (MU) can help the SOXX index lift above the
$290.66 level and extend up to $322.