Charted Territories

By Jim Donnelly, Olson Global Markets

Following months of a steady recovery in stock prices, the CBOE Volatility Index (VIX) tested and held two forms of trend line support at the 22.20 level on weekly charts. Oversold conditions are now present on both weekly and longer-term monthly charts, which suggest that a “bottom” in the VIX has likely been reached.

Moreover, since the relationship between the S&P 500 Index and the CBOE Volatility Index (VIX) has been an inverse one, a near-term “top” in the S&P 500 Index may have been reached as well. Thus, weaker equity prices could result if this relationship holds.

Although better-than-expected earnings reports have largely fueled the recovery in the S&P 500 Index, a battle in Congress over healthcare reforms, a call for more troops in Afghanistan and a potential showdown with Iran over its surprise revelation of the development of a second nuclear facility could rattle the equity markets over the intermediate-term.

Weaker than expected readings on both housing and manufacturing also cooled investor enthusiasm for stocks last week. Profit taking in front of this quarter’s end (on Wednesday) as well as the anticipation of Friday’s jobs report could further the tendency to trim positions until clearer reads on both the economy and the geopolitical climate present themselves.

http://www.ogmarkets.com/

By Jim Donnelly, Olson Global Markets

Amid renewed greenback weakness, the focus of those looking for dollar-induced inflation has been gold. When looking at the largest traded gold ETF (GLD) as a proxy, its price broke above key trend line resistance last week at the $97.50 level and inched slightly above that level to close at $98.67 on Friday.

While overbought conditions are now present on weekly charts, these oscillators are not yet excessively extended. This situation, which often accompanies a key “breakout”, suggests that more upside gains are likely to be scored as momentum buyers continue to buy and support the bullish case for gold.

With that in mind, a “measured move” extension drawn off key “channel bottom” support targets a move up to the $110 area for GLD. That roughly translates to a price of $1,125 for spot gold.

Of course, a solid break below former resistance (now support) at $97.50 on GLD would be a worry and could act as a big “yellow caution flag” for the bullish case.

http://www.ogmarkets.com/