Charted Territories

By Jim Donnelly, Olson Global Markets

Although key “neckline” resistance on the S&P 500 Index (SPX) at the 1,275 level failed to hold equity buyers back, a sharp move above it was followed by an equally sharp rejection below it leaving the S&P 500 without a clear resolve on its direction or trend tendency.

Earnings announcements have been better-than-expected, with some estimates for full year of 2011 being anticipated to post record numbers in the $94-to-$100 range.  Corresponding economic reports have also scored more favorable outcomes than had previously been hoped for suggesting that Q4 GDP might result in readings coming in the 2.8%-to-3.1% range from earlier estimates of 2.5%.

Continued dismay over the debt crisis in Europe along with trepidation over the outcome of the 12-member super committee’s efforts to reduce debt obligations here in the U.S. have investors lower their “risk” profile, despite a wide array of improving domestic numbers.

From a technical point-of-view, the S&P 500 index (SPX) needs to break well above the 1,275-to-1,293 range in order to breakout of its recent pattern of fits-and-starts and wide day-to-day price swings.  The absence of such a breakout, however, could send the S&P 500 index (SPX) back down on a path that could potentially retest it recent low of 1,074.

http://www.ogmarkets.com/

By Jim Donnelly, Olson Global Markets

While evidence suggests that headline inflation may be receding globally, sporadic jumps in specific commodity prices are lifting the Reuters/Jefferies CRB Total Return Index (CRB) higher. Much of the price pressure is due in part to dislocations caused by erratic weather conditions across in various parts of the world. Some of the pressure, however, appears to be related to expectations for new cuts in global interest rates.

The Chinese government’s chief priority of bringing inflation under control has had success. October’s annual consumer price index (CPI) increase fell to 5.5 percent in contrast to July’s peak of 6.5 percent. This success, however, has fostered the idea that the Chinese government may soon shift to a policy of monetary stimulus by lowering interest rates in the near future.

Moreover, growing speculation that the ECB may move to buy more distressed sovereign debt issues from European banks comes on the heels of an unexpected cut in interest rates by the new ECB president Mario Draghi. The recent change of leadership and monetary policy in theOld Worldcomes at a time when their insipid financial crisis might cause a slowdown in economic activity generally.

That being said, a recent report showingU.S.farmers are reaping their smallest corn harvest in three years could restrict an expansion in global food supplies. Moreover, feed supplies for livestock as well as a slowdown in ethanol production are each expected to raise prices of processed foods and meats, as well as pushing fuel costs higher. While poultry and livestock producers could move away from corn feed to wheat (thereby boosting wheat prices), worse than expected damage to the rice crop and inventories due to flooding inThailandhas kept those prices moving higher as well.

Although overbought conditions are now present in crude oil futures, increased worries overIran’s nuclear program have helped to lift the price of spot crude to nearly $100 per barrel.

In any event, the Reuters/Jefferies CRB Total Return Index (CRB) is approaching key trend line resistance at the 326 level with weekly technical oscillators rising bullishly. A break above 326 would be troubling for consumers, but could trigger a move by hedgers and speculators into long positions that could push the CRB index to much to higher levels over the intermediate-term.

http://www.ogmarkets.com/