By Jim Donnelly, Olson Global Markets

After stalling a number of times near the $73/$74 level, the price of crude oil appears to need a catalyst to “breakout” and extend higher …that’s if it’s going to happen over the near-term. There are hints, however, that further upside gains may be just around the corner.

On longer-term charts, for example, the Philadelphia Oil Service Sector Index (OSX) appears to be in position to take a run up toward key “cross” trend line resistance now located at the 193 level …and possibly break above it.

Monthly stochastic studies are rising from an oversold condition paralleling a bullish reading on its Relative Strength Index (RSI). And although it’s monthly MACD (Moving Average Convergence and Divergence) oscillator is still declining, it appears to be basing out and is nearly ready to issue a bullish signal. For reference, MACD has been locked onto a bearish signal since July/August 2008.

A break above key resistance at 193, if it occurs, would be considered to be a bullish “breakout” and could carry oil service stock prices higher for months to come.

http://www.ogmarkets.com

Jim Donnelly, Olson Global Markets

Do stock market recoveries always follow a script? Well, many investors and analysts alike do look for repeating structural clues to help determine whether an economic turn-around is for real, or just a “head fake”. Featured clues that have been helpful over the past 20 years center on the either the financial sector or the tech sector (or both) to pave the way for a renewal in growth expectations.

It is very clear that financial stocks have already made a dramatic turn around higher from the depths of the March lows. Stability in the banking system is part of the reason. Credit demand and availability issues, however, remain less clear. Nevertheless, money center common shares as well as their preferred issues have risen sharply in the wake of the “stress test”. Subsequent financial maneuvers to raise equity by issuing more common stock, or by converting outstanding preferred issues into common, have been important factors. Better than expected inventory levels and housing numbers have been positives as well.

Also moving to the upside with some vigor have been tech stocks. The chart of the NASDAQ 100 Index (NDX) has jumped nearly 61% from its November 2008 and March 2009 retest lows. Recent earnings reports from the likes of CSCO an HPQ have surprised to the upside with earnings, but have had less positive results regarding top line revenue growth. Nevertheless, investors appear to be entertaining the thought that a floor has clearly been seen in the NASDAQ 100 index with more upside gains very possible.

That said, the NASDAQ 100 Index is quickly closing in a test of two forms of trend line resistance (both located near the 1,670 area) that are important technically. On weekly charts, overbought conditions are now present which suggests a break above the 1,670 resistance area may be formidable over the short-run without a correction occurring first. A solid break above 1,670, if it occurs however, would be seen as a technical “breakout” and a terrific sign of strength.

Stay tuned. This key test is nearly upon us.

http://www.ogmarkets.com

By Jim Donnelly, Olson Global Markets

Although overbought conditions now prevail on both the daily and weekly time frames, long term technical studies are nevertheless rising nicely following a year-long plunge into deeply oversold readings. With this situation at hand, it is interesting to point out that the S&P 500 Index is now approaching a test of key trend line resistance (in red) at the 1,025 level.

Since a chorus of well known fundamental investors (and analysts) suggested last week that the equity markets were well ahead of the economy at this point, it appears that investors have become cautious. The concern, of course, is that a correction or worse may be just around the corner.

Although these worries may prove to be accurate, a solid break above 1,025 on the S&P 500 Index would likely catch a number of investors off guard once again. With earnings season just about over and a myriad late August vacations likely to thin investor attendance, one would expect a pause in market activity to occur unless an exogenous event unexpectedly presents itself.

That said, its worth pointing out that long-term technical studies favor an eventual break above resistance now at the 1,025 level. If it occurs relatively soon, a move up the next key resistance level at 1,165 (in blue) may unfold over the intermediate-term.

Over the short-run, however, that battle should take place near the 1,025 area.

http://www.ogmarkets.com

By Jim Donnelly, Olson Global Markets

The financial sector, including money center banks, investment bankers, insurance companies and brokers, has experienced a solid and well received turn-around to the upside since the depths of this past year’s devastating selloff.

And while Friday’s last hour pullback (particularly in bank stocks) may portend near-term weakness in the days just ahead, more upside price activity is likely to be achieved over the intermediate term.

From a technical perspective, the Financial Select Sector SPDR Fund, whose ticker symbol is XLF, has already formed of a bullish reverse Head & Shoulders pattern that targets an eventual move up to the $20 area. Friday’s $14.35 close, which sits solidly above former “neckline” resistance at $13, nevertheless caused daily technical studies to move into an overbought condition.

Although these technical conditions raise the possibility for a pullback over the near-term, to “retest” neckline support at $13, such an event would likely present another attractive buying opportunity for financial stocks. Bullish technical divergences continue to support expectations for further gains over the intermediate-term with momentum buying clearly present.

Unless the fundamental picture of the financial sector begins to sour once again, a pullback toward the $13 area on the XLF would look like a “buying” opportunity from this vantage point.

http://www.ogmarkets.com

By Jim Donnelly, Olson Global Markets

Renewed jitters in the currency markets over the past couple of weeks sent the dollar index (DXY) back down to retest and slightly dip below its recent low near 78.315. That said, sellers found buyers in that area which forced the dollar upward and in turn caused the MACD (Moving Average Convergence and Divergence) indicator to diverge bullishly. Technically, this is a positive development when looking at daily bar charts.

Adding to an upbeat near-term view of the dollar are daily stochastic studies, which are now rising bullishly from an oversold condition. It will take a solid break above key “cross” trend line resistance at the 80.60 level, however, to begin to get excited about renewed dollar strength (see chart below), if it occurs.

Hints from England suggesting that the U.K.’s quantitative easing program may be nearing an end suggests, however, that the possibility of rising short dated rates from abroad could force the dollar lower are clearly a concern.

Dollar bulls, on the other hand, suggest that expectations for an economic recovery in the U.S. and abroad have gotten way ahead of their respective realities. If this scenario is accurate, another “run to safety” trade back into the dollar may well play out over the next few weeks.

While long-term fears of an erosion of the value of the dollar persist, the short term technical set-up for the dollar index (DXY) suggests that near-term dollar strength is likely to unfold first.

http://www.ogmarkets.com