Archive for June, 2010

Can The S&P 500 Index Hold Support?

Posted in The S&P 500 Index (SPX) on June 28th, 2010 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

With quarter-end upon us, the question heading into the second half of the year technically is: Can the S&P 500 Index (SPX) hold support, which is now sitting at 1,050? That level represents two forms of trend line support that just happen to converge within an upward sloping trading range.

At the moment, stochastic studies are falling bearishly, but are nearing an oversold condition on weekly charts. RSI is neutral, but MACD oscillators remain bearishly aligned characterized by an on-going divergence. A solid break below 1,050, if it occurs, could lead to a sizable extension down to channel bottom support now resting in the 960 area.

In the forefront, a worrisome jobs picture combined with dismal housing numbers helped dim the fundamental outlook last week. A set of new financial regulations soon to become law also soured the outlook for both the economy and equity prices, particularly since credit will likely become less available to consumers. Some expect to see conditions to worsen further. Others, on the other hand, suggest that amid all these concerns earnings will show improvement for the past quarter. In addition, most observers have increased their expectation for an extended period of unusually low interest rates.

In any event, a focus on the 1,050 area on the S&P 500 Index (SPX) should provide a reasonably good insight as to the direction of equity prices over the next quarter or two.


Are Utilities Poised For A Solid Move Higher?

Posted in Dow Jones Utility Index (DJU) on June 20th, 2010 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

In light of the sunset provision in the law that had reduced taxes on dividends and capital gains during the Bush Administration, one might expect a reduced enthusiasm to own dividend paying stocks going forward. The Obama Administration, however, appears likely to align tax rates on both dividends and capital gains to 20% from the current 15%. Although not yet voted on by Congress, this is much less ominous than the concern that they could rise to 39.6% and 20% respectively.

Another factor to consider is the growing notion that austerity measures being taken in Europe and in many States and municipalities through the U.S. will result in a prolonged non-inflationary slow-growth period. If so, income producing vehicles of all kinds should remain in focus, particularly for cash starved pension plans and retirees who rely on interest and dividends for their day-to-day needs.

This assessment could be why the Dow Jones Utility Index (DJU) appears to be forming a bullish reverse Head & Shoulders pattern on weekly bar charts. Interestingly, a very similar pattern formed during 2002 and 2003 at lower levels that corresponded with a higher inflation environment.

In this case, a break above “neckline” resistance at the 408 level could lead to a solid extension up to the 525 area on the Dow Jones Utility index. Near-oversold conditions are currently present, which suggests that a move of that magnitude is clearly possible.