Archive for January, 2012

The Keefe, Bruyette & Woods U.S. Bank Index Breaks Above Key Resistance

Posted in Keefe Bruyette & Woods U.S. Bank Index (BKX) on January 11th, 2012 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

After a steady 5-year decline, the Keefe, Bruyette & Woods U.S. Bank Index (BKX) finally broke above primary downtrend resistance at the 40.90 level. Prior to the bullish “breakout”, the BKX formed a “basing pattern” that took nearly six months to develop.

Interestingly, last week’s trend line break occurred despite continued and prolonged worries over that strength of European banks. Those banks, however, recently received a big “shot in the arm” from the European Central Bank (ECB) in the form of cheap 3-year loans. While the jury is still out on whether such a maneuver can eventually help to recapitalize a number of those troubled banks, it is clear that ECB did move in a bold way to stabilize their credit system. This at the very least has postponed an immediate banking crisis from emerging. In turn, that has helped reduce fears of contagion spreading toU.S.banks.

Moreover, a number of positive signs regardingU.S.employment have helped to improve investor psychology heading into the New Year. In turn, these employment data have caused a number of economists to upgrade their GDP forecasts for Q4. Improved auto sales and hints of stabilizing housing prices in selected areas of the country have also been a plus.

With these observations emerging, the U.S. Dollar Index has found gradual, but broad-based support as well …despite near-zero percent short-term interest rates.

From a technical point-of-view, the Keefe, Bruyette & Woods U.S. Bank Index (BKX) is in position to extend its recent gains since overbought conditions are not yet present. With that in mind, it is worth noting that the next key resistance area is near 47.50 where key trend line resistance now sits.

S&P 500 Index Stuck Just Below Key Resistance; Momentum Waning

Posted in The S&P 500 Index (SPX) on January 5th, 2012 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

After a 3-month rebound off the 1,074 October 4, 2011 low, upside momentum appears to have stalled on the S&P 500 index (SPX). Equally frustrating is the observation that the S&P 500 index remains stubbornly below key “neckline” resistance (of a bearish Head & Shoulders pattern) that currently sits at 1,293.

Continued worries over debt and banking issues Europe, evidence of a slowdown in both China and India, along with a less-than-robust recovery in the United Stateshave kept equity investors from taking much risk. On the contrary, the preference for dividend paying stocks, low yielding U. S. treasuries as well as elevated levels of cash holdings have prevailed instead.

From a contrarian point-of-view, these conditions might well suggest that current evaluations of equities are, in general, at “bargain basement” levels. Nevertheless, the direction of the S&P 500 index from a technical standpoint remains unresolved with bullish “momentum” clearly running out of steam.

In that regard, a longer-term chart suggests that the failure of the SPX to rise above “neckline” resistance now at 1,293 may eventually give way to a renewed move to the downside. History has shown, in fact, that similar “neckline” failures have resulted in major declines that have evoked extraordinary measures from the Federal Reserve. Those measures, which have been engaged in order to blunt a serious deterioration in economic conditions however, have proved to be limited in their effectiveness. It can be argued that these disappointing results are due, in part, to the fact that the Fed’s “easing” maneuvers have started from consecutively lower levels of short-term interest rates as well as other yield levels across the curve. Worried investors now have reason to be concerned that the Fed could be “pushing on a string” which, in turn, could result in a more muted economic response.

An expansion in global growth, as well as a reduction in fiscal fears will be needed for another upside “leg” in equity prices to occur. The groundwork for those conditions, however, could take months or perhaps years to be realized. Time will tell.