Archive for April, 2011

S&P 500 Index Appears Aimed For A Test Of The 1,400 Area

Posted in The S&P 500 Index (SPX) on April 25th, 2011 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

With a number of better-than-expected Q1 earnings results, the continuation of ultra low interest rates, and the dollar index (DXY) still heading lower, the S&P 500 Index (SPX) appears to be headed for an eventual test of the 1,400 area, and new yearly highs. This, of course, appears to be happening amid a battle over the national budget deficit, continued turmoil in the Middle East, rising commodity prices and an unfunded pension liability crisis looming across the nation at the state and municipal level. Increased speculation over possible sovereign debt restructuring in Europe is also a dark cloud on the horizon.

From a technical point-of-view, however, Elliot-wave analysis currently suggests that the S&P 500 Index has already completed a 4th-wave correction and is now in the midst of a 5th-wave move higher targeting 1,396. Coincidentally, three forms of trend line resistance appear to converge just below the 1,400 level on weekly bar charts as well.

While a plus for equity prices in the short-run, this technical set-up also suggests that a sizeable correction to the downside should emerge after the 1,400 area is reached on the S&P 500. At the very least, a minimum 38% retracement of the projected 1,396 high and the July 2010 1,011 low targets a potential pullback to the 1,248 area. A more realistic 50% correction would target a move down toward 1,203. While these expectations may be getting a little ahead of actual market movements, the current set-up remains positive over the near-term. It is the “intermediate-term” that is the real worry.

Gold ETF (GLD) Approaching Test of Major Resistance

Posted in GOLD (GLD) on April 17th, 2011 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

Although it has been going up steadily for a long, long time, a test of major trend line resistance appears to be at hand for GLD, the largest gold ETF. With the rhetoric over the budget deficit as well as the debt ceiling finally at “center stage”, this GLD test might itself become a referendum on the believability of this country’s resolve to address the big White Elephant sitting in just about everyone’s living room.

From a technical point of view, GLD is about to test key long-term upward sloping trend line resistance, which currently sits at $146 with overbought conditions clearly present. In addition, the “commitment of traders” report suggests that net open positions for “small traders” are rising, but falling for professional “commercial hedgers”. This set-up usually suggests that speculation is running high for less sophisticated traders.

Nevertheless, a solid break above $146 would be an impressive sign of strength and would likely be accompanied by another decline in the U.S. Dollar Index (DXY). It might also suggest that Fed Chairman Bernanke’s monetary expansion efforts may not even be close to being over. The failure to “break” above it, however, might be the pause that refreshes at a time when global traders, central bankers and institutional investors are focused on the debate that is about to emerge in Washington over difficult policy decisions that have got to be made.