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/

By Jim Donnelly, Olson Global Markets

Continued dollar weakness combined with a steady stream of positive economic data last week helped support the idea that the economy might actually be improving. And although the current unemployment level remains stubbornly high and is sill rising, enough economists have conveyed the notion that employment is a lagging indicator. As a result, commodity prices have continued to firm on a week-over-week basis.

Technically, it appears that one barometer of inflation, the CRB Index, is in the process of forming a bullish “Cup & Handle” pattern on daily bar charts that targets a move up to the 343 area. A break above “neckline” resistance, now at 268, is needed to validate this pattern’s importance.

Up to this point, a rise in commodity prices has been bullish for equity prices. The theory is that if commodity prices rise and the dollar coincidently sinks, U.S. companies should benefit with competitive pricing power, thus helping their bottom lines.

If this relationship holds and the CRB Index rises, the S&P 500 Index may continue to advance as well. Key technical resistance for the S&P 500 Index, for example, sits near the 1,165 area, which is more than 8.5% above Friday’s 1,071.49 close.

http://www.ogmarkets.com/

By Jim Donnelly, Olson Global Markets

Profit-taking following this year’s 50% rise from the March low combined with renewed uncertainty in the wake of September’s employment report have teamed up to cause a setback for the S&P 500 Index over the past week or so. Although there have been a number of forecasts expecting a correction in the 5% to 10% range to occur, it appears that the 980 area represents important near-term support for the S&P 500 Index.

That level represents both the “backside” of former trend line resistance (in red) drawn off a series of lows and highs dating back to February 2007, as well as key “cross” trend line support (in green) drawn off a series of highs and lows dating back to July 1997.

Long-term technical studies, including stochastic, MACD (Moving Average Convergence/Divergence) and RSI (Relative Strength Index) barometers all remain bullishly positioned. This setup technically suggests that if a pullback to the 981 area presents itself on the S&P 500 Index, it would likely represent an attractive “buying opportunity” for equity investors …if the underlying fundamental picture maintains a positive bias.

http://www.ogmarkets.com/