By Jim Donnelly, Olson Global Markets

While deemed one of the most “crowded” trades currently on investor’s books, the popularity of being short the U.S. dollar, or the dollar index (DXY) may have been tempered slightly following the news surrounding Dubai’s debt problems over the Thanksgiving holiday. With oversold conditions currently present, some observers have been on the alert for an exogenous event to possibly trigger a “run to safety” trade into the dollar and, in turn, causing a spirited “short-covering” greenback rally.

Worries over the exposure to Dubai’s debt that a number of global lenders have was just another reminder of the residual credit “risks” that could cause havoc in the global marketplace. An unexpected rally in the dollar, of course, would likely result in bearish corrections in both commodity and equity prices.

From a technical point-of-view, the dollar index (DXY) is edging ever closer to a cluster of support near the 73.50 area that should define its direction over the intermediate-term. Elliott-wave analysis alone, suggests that the bearish run in the dollar is likely approaching a conclusion.

With that said, a solid break below 73.50 on the DXY would be a troubling situation for central bankers and the balance of trade internationally. China’s currency remains largely pegged to the greenback which would make both U.S. and Chinese exports look more and more attractive to global consumers at the expense of European and Japanese products and services. That is another issue.

For the time being, key a close eye on the 73.50 level on the DXY.

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By Jim Donnelly, Olson Global Markets

On October 11^th, we observed that a possible bullish “cup & handle” pattern that targeted a move up to the 343 area was developing on the CRB Index of commodity prices. A “break” above key “neckline resistance at the 268 level was needed to verify this pattern’s validity, and that occurred on October 14th.

Supplementing the notion for a solid extension higher in commodity prices can be helped by looking at monthly bar charts. When looking at the monthly time frame, the CRB index broke above key “cross” trend line resistance at the 265 level on October 12^th with long-term technical oscillators signaling “buy”.

Important to note, however, was that an upward sloping trend line dating back to the CRB Index’s 182 low of November 30, 2001 held as support until October 7, 2008 as liquidations of many asset classes ensued following the collapse of Lehman Brothers. It is now interesting to observe that the “backside” of that former support line now sits as resistance coincidentally at the 343 level (and rises gradually over time).

With the relationship between commodity prices and the S&P 500 index still apparently in effect, a rise in commodity prices should be positive for equity prices. One reason for continuation of this relationship is that a rise in commodity prices points to a global economic recovery with the demand increasing for raw materials, both hard and soft. Another reason is that the U.S. dollar will likely continue its bearish trend for a bit longer. If that assessment is accurate, U.S.  companies should benefit by having competitive pricing power for goods and services, thus helping their bottom lines.

In any event, commodity prices and the CRB Index appear to hold a bullish bias with much more upside yet to unfold.

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By Jim Donnelly, Olson Global Markets

With the value of the dollar weakening almost daily, the price of gold has risen steadily since March. Former trend line resistance on the SPDR Gold Trust EFT (symbol: GLD), the largest gold ETF, was then broken above on September 11th with the price of gold rising since then. Although deemed a “crowded trade” by many market observers, a major test of resistance appears to be nearing for gold and corresponding gold ETFs alike.

Key resistance drawn off the March 13, 2008 high, parallel to trend line support dating back to 2005 suggests that the $110.50 area on GLD is major “channel top” resistance at the moment. With overbought conditions present on both stochastic and RSI (relative strength index) studies, the $110.50 level on GLD would normally represent an attractive level to take profits, trim positions and reduce exposure.

These are not normal times however, which makes the upcoming “channel top” test even more important and interesting. A solid close above $110.50 would be considered a key “breakout” to the upside which, in turn, could trigger “follow-through buying” causing another spurt higher to occur in the price of gold.

The failure to spark such a “breakout” however, would likely result in a correction to the downside that should be accompanied by a reversal higher in the value of the greenback. This key test should come soon and investors should be focused on it.

http://www.ogmarkets.com/

By Jim Donnelly, Olson Global Markets

With bearish technical divergences present on daily bar charts, we had anticipated a deeper correction to the downside to emerge on the S&P 500 Index (SPX) just last week. It did not. A break below two forms of support at the 1,045 level turned out to be just a temporary event with limited follow-through selling. Moreover, Friday’s employment data, which appeared to give wary investors enough reasons to trim positions, did not send the S&P 500 Index lower either.

What happened? Another look at the S&P 500 (SPX) revealed that one particular “cross” trend line that had acted as either support or resistance dating back to December 12, 2008 provided support at 1,029 on November 2nd with oversold conditions present on daily bar charts.

With that in mind, it might be important to note that a parallel trend line (to this particular “cross” trend line) drawn off the highs of both 1/6/2009 and 10/19/2009 now sits at 1,115 with daily stochastic and RSI (Relative Strength Index) studies rising bullishly.

Although Friday’s post-employment data trading session was characterized by depressed volume levels, it might just turn out that a march toward 1,115 has begun in the short-term. The dollar index (DXY) is heading lower again and the price of gold rising. Both of these circumstances appear to be in sync with a move higher in the SPX.

The real question is whether the 1,115 area will prove to key resistance on the SPX , if tested relatively soon.

http://www.ogmarkets.com/

By Jim Donnelly, Olson Global Markets

Despite an oversold condition on daily charts, the S&P 500 Index (SPX) closed just below two (2) forms of trend line support at the 1,045 level …thus raising the prospects for a larger correction to the downside near-term. With a bearish technical divergence now registered on daily MACD (moving average convergence/divergence), follow through selling appears likely.

Although our longer-term expectation for an eventual test of the 1,165 area remains intact, the fallout from last week’s session resulted in a spike higher in the CBOE volatility index (VIX), a reversal to the upside in the dollar index (DXY), a swoon in equity prices and a selloff in commodity prices. At this point, these events appear to be short-term in nature and overdue.

There is no doubt that last week’s Q3 GDP report, which reflected a greater-than-expected rise of 3.5%, was a big plus for the domestic economy …so were a number a better-than-expected earning reports. Still, disappointing housing numbers, a decline in consumer confidence, worries over commercial real estate and a renewed concern of a possible large new “write down” at CitiGroup, Inc. (symbol = C) appeared to be enough to encourage some investors to lock in profits well ahead of this year’s end.

From a technical standpoint, if the S&P 500 continues to trade below 1,045, the “risk” of a move down to the 951 to 958 zone, where “cross” trend line and “channel bottom” supports sit, looms.

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