Charted Territories

By Jim Donnelly, Olson Global Markets

Despite a number of equity forecasters worried about an end to the impressive stock market rally that emerged from this year’s March low, the S&P 500 Index (SPX) remains “on track” for a test of the 1,165 area when looking at long-term monthly charts.

No doubt, the up move registered by the S&P 500 to date (as well as other indices) has been largely a “one way” event. With that said, however, there has yet to be any defined technical signal to suggest the rally is over.

Perhaps there is a psychological concern that the S&P 500 has been unable to breach the 1,100 barrier. Nevertheless, that level sits just 7 points above from Friday’s weekly close. Many investors will, of course, be gearing up for this coming Friday’s report on October’s employment data. Any hint of a bullish slant to Friday’s report prior to its release, such as the ADP report due out at 8:15 AM on Wednesday November 4th, could be enough to cause a break and or close above the 1,100 level.

Technically, long term stochastic oscillators remain positioned bullishly with plenty of room to move higher. Long-term RSI (relative strength indicator) and MACD (moving average convergence/divergence) also favor a continuation to the bullish trend.

A test of the 1,165 area, if it occurs however, should prove to be an interesting barometer of the health of current equity market recovery.

http://www.ogmarkets.com/

By Jim Donnelly, Olson Global Markets

Following an almost steady 7-month decline in value, the U.S. dollar index (DXY) is now approaching a key support area on daily charts while in an oversold condition.

Trend line support drawn off the lows of 2008 as well as a “cross” trend line support drawn off the highs of December 2007 and the lows of August 2008 and September 2008 both coincide at the 73.50 level on daily bar charts.

This support area should be of critical interest to both foreign exchange investors and global policy makers as well. A solid break/close below this area would likely send gold prices to new highs (in dollar terms) as well as kick start the CRB Index into a new swing higher.

In turn, foreign holders of U.S. debt may balk at adding to positions making it much more difficult for Treasury to issue low yielding debt, particularly at the longer end of the yield curve. Higher long-term interest rates, if they occur, would also have a negative influence on mortgage lending in an already challenging environment.

Support at 73.50, on the other hand, could catch dollar bears off guard in a market where there appear to be few dollar bulls. A crowded “dollar short” trade such as this one could result in a scramble to cover positions.

In any event, the level to focus on for the DXY dollar index is 73.50.

http://www.ogmarkets.com/