Archive for December, 2011

Dow Jones Utility Index: The Pursuit Of Yield Continues

Posted in Dow Jones Utility Index (DJU) on December 29th, 2011 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

As 2011 comes to a close, it is clear that the pursuit of reliable yields persists. As noted in previous alerts, a bullish reverse Head & Shoulders pattern on the Dow Jones Utility Index (DJU), which is eerily similar to one that developed back in 2002 and 2003, continues to play out to the upside. With nominal interest rates at much higher levels during 2002 and 2003, the beginning point of the previous reverse Head & Shoulder pattern was from much lower price levels.

At present, short-term interest rates are expected to stay near zero for at least the next 18 months. Moreover, “operation twist” continues to force yields on longer-term treasuries to ever lower levels. As a result, conservative investors, retirees as well as pension managers are finding dividend yields on a wide array of utility shares appealing. The prospect of capital appreciation adds to their luster.

The “objective” of the current bullish reverse Head & Shoulders pattern remains at the 525 level, which suggest that a 13.4% rise in the DJU index is technically expected to be achieved from Friday’s close.

While the outlook for utility prices remains promising, a general concern that an unexpected riseU.S.interest rates, as well as a rise in other nations’ sovereign debt yields, could derail the present optimism for utility shares. A change in the treatment of dividends from a tax point-of-view could also become a much bigger issue in 2013.

For now, however, the Dow Jones Utility Index appears to be headed for  much higher levels as revenue strapped investors try to find conservative sources of income.

The CRB Index Breaks Support as the Dollar Index Jumps

Posted in CRB Total Return Index (CRB) on December 21st, 2011 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

Disappointment overEurope’s slow moving attempt to take strong enough measures to reduce its debt crisis resulted in a robust jump in the U.S. dollar index (DXY) and a sharp drop in the Reuters/Jefferies CRB Total Return Index (CRB) index last week.

On longer-term charts, last week’s frustration over the absence of a financial “big bazooka” inEuropecaused the CRB commodity index to close below key trend line support at the 303 level. Although technical oscillators on the CRB’s daily chart are currently in an oversold condition, long-term monthly studies are clearly not. With a “gap” also created at the 303 level during Wednesday’s volatile session, a move back toward 303 could result near-term; particularly if this week’s pre-holiday trading activity remains light.

That being said, dimming hopes that a believable resolve to the European debt crisis may ever come to fruition could send commodities solidly lower from current levels. Looming worries over the stability of the European banking system adds to the gloom.

From this vantage point, there is a “risk” that the CRB could eventually move down toward a test of key support currently sitting at 248. Although a move of this magnitude would be in-line with a global slowdown, a reduction in commodity prices would also be seen as a plus for consumers and companies that are large commodity users.

Nevertheless, the threat of a prolonged bout of price deflation could eventually panic central bankers to bring out an arsenal of “big bazookas” in a desperate attempt to avoid a global “liquidity trap”.