Archive for December, 2010

CRB Commodity Index Breaks Solidly Above Key Resistance

Posted in CRB Total Return Index (CRB) on December 30th, 2010 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

Prior to Saturday’s rate hike in China, the Reuters/Jefferies CRB Total Return Index (CRB) broke solidly above key trend line resistance at the 320 level and closed the week at 329.38, despite overbought conditions. From a technical standpoint, this break suggests much higher levels for the CRB index, particularly since MACD readings on long-term (monthly) charts are on the verge of crossing above the “neutral line”. Such a crossing is generally consistent with “buyers” taking “control” from “sellers”.

Many chartists and trend followers already know that cotton prices are at levels not seen since the Civil War; and that copper closed Friday’s session near all-time highs. Shortages in coffee and cocoa are pushing those prices solidly higher as well. Comments from Gulf Oil CEO Joe Petrowski on Thursday predicting crude oil will hit the $100/$125 range before the end of Q1 were also sobering. He also suggested that there was a 1-in-4 chance that the all-time $147 high could be exceeded by the Memorial Day. Moreover, he does not see this as a short-term problem.

Nevertheless, Mr. Petrowski did suggest that if domestic 10-year Treasury yields were to rise above 4.5%, or if demand from China were to actually decline, oil prices could abate. As it stands from this vantage point, however, it appears that the CRB index is now aimed for a test of key trend line resistance located at the 368 level. If such a move were to occur, it would likely act as a form of “tax” on consumers that could, in turn, be a big negative for the economy, equity profits and equity prices in the coming months.

The CBOE Volatility Index: A Fly In The Ointment?

Posted in CBOE Volatility Index (VIX) on December 20th, 2010 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

Amid a shift away from fixed income investments and toward equities, and with a smattering of year-end “window dressing”, the S&P 500 Index has been edging closer to a test of key trend line resistance near the 1,280 area. Fostered by this change in investment preference, it is also worth pointing out that the CBOE S&P 500 Volatility Index (VIX), which has been steadily declining for months, is now approaching a test of dual trend line support located at the $15 level.

With oversold conditions present on weekly charts, this set-up suggests that the decline in the VIX, which originated last May, could be coming to an end soon. It is also worth noting that the last time the VIX reached this area of support was last April when the S&P 500 Index itself hit an intermediate-term high of 1,219.80. Afterwards, the S&P 500 Index declined by almost 209 points, or 17% until it reached the 1,010.91 level on July 1st.

The current technical set-up on the VIX, is at the very least, a “heads up” that the S&P 500 index may find it difficult to cross solidly above the 1,280 area on its first attempt. Instead, a solid correction phase in equity prices could result. That said, the economy has been slowly improving over the past few months. Another big plus was the passage of a massive compromise fiscal stimulus package that was just signed into law. That passage should help the economy to continue to strengthen over the intermediate term. Still, battles over how to pay for this out-sized plan could cause unease in the investment community in the months just ahead.