Archive for April, 2012

U.S. Dollar Index Poised To Climb Higher

Posted in U.S. Dollar Index (DXY) on April 24th, 2012 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

With the presidency of French conservative Nicolas Sarkozy in jeopardy, worries that the alliance between Sarkozy and German Chancellor Angela Merkel (known as Merkozy), which favors austerity over massive fiscal stimulus in the Euro Zone, may be in jeopardy as well. Renewed worries that the regional debt crisis in Europe is worsening, particularly in Spain (and possibly in Italy) put downward pressure on the Euro Dollar last week. Conversely, the U.S. dollar index (DXY) appears to be in position to extend higher despite concerns that the economic recovery in the U.S. may be running out of steam.

Importantly, the U.S. dollar index (DXY) is now approaching a test of primary downtrend resistance that sits at the 81.65 level. A break above this resistance would increase the likelihood of a possible extension up to key “cross” trend line resistance currently sitting at 87.25.

In recent years, history has shown that a rise in the DXY is usually accompanied by a decline in stock prices as well as an increase in price volatility. Further, a decline in commodity prices as well as drop in bond yields as usually associated with dollar strength as well.

A failure to rise above 81.65, however, would likely help keep equity prices range bound until, perhaps, the November elections. That being said, it is important to the Euro Zone that growth in the U.S., as well as in China continues play out. It would be a stabilizing influence on the European economy as their self imposed austerity measures get their debt ratios down to manageable levels. A decline or a significant slow down in either the U.S. or China could instead frighten investors globally.

Is The S&P 500 Index Just In A Correction?

Posted in The S&P 500 Index (SPX) on April 19th, 2012 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

After stalling out at the 1,422 level on April 2nd (albeit an interesting point that 1,422 is a numerical anagram of that date: 4/2/12), the S&P 500 Index (SPX) has seemingly been in a consolidation phase. This post-Q1 phase has been characterized but sharp intraday price swings and a rise in the CBOE S&P 500 Volatility Index (VIX) since its 13.66 low was scored on March 16th. Fundamentally, “earnings season” has now begun with some positive surprises having already been announced. Forward guidance as well as geo-political events, however, have kept investors in a defense posture, particularly after coming off such a stellar first quarter performance.

Overbought technical conditions on weekly charts combined with last month’s disappointing employment report may have also forced many investors to look for better points of “entry” before committing cash.  While the vagaries of economic reports out of Europe swinging both bullishly or bearishly at times, there is reason to expect global growth to be limited at best.

As a result, investors continue to search for reasonable “entry” points on specific company names or sectors. When looking at the S&P 500 Index itself, it appears that the first key “cross” trend line support now sits at 1,319, but rises gently over time. If that level is reached quickly, however, current overbought conditions will not have had enough time to diminish very much. That leaves the door ajar for a more pronounced adjustment lower, unless fresh positive fundamental events become the focus.

As the “sell in May and go away” mantra draws closer, the bigger issue at hand is whether the 1,319 level can hold as support. Lower gasoline prices, a string of better-than-expected weekly initial jobless claims combined with a slew of upbeat earnings guidance would clearly help. Worries over the slowdown in China, the financial problems of both Spain and Portugal, and the expectation the state and municipal job layoffs (as their collective budget deadline of June 30th approaches) could cause investors to trim positions and “wait and see”. An increase in political President election-year rhetoric could also be cause for a pause.

Thus, a solid break below key trend line support at the 1,319 level on the SPX could trigger a more pernicious response from investors.