Archive for August, 2012

Will Commodity Prices Push Higher?

Posted in CRB Total Return Index (CRB) on August 30th, 2012 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

With gold and silver prices apparently breaking out of year-long consolidation patterns, and aided by a surge in agriculture prices (due to extreme weather conditions), the Reuters/Jefferies CRB Total Return Index (CRB) broke solidly above key trend line resistance at 295.60. Increased worries over a possible Israel/Iran confrontation added to the recent uptick in oil prices as well.

Still, the threat of worsening global economic conditions suggests that demand for many commodities may be tempered over the intermediate-term, such as aluminum, copper and nickel. With this week’s Jackson Hole conference expected to hint of more monetary stimulus from Europe, Japan and possibly the United States, a renewed shift into commodities could nevertheless result.

Some argue that in the absence of more normal economic growth expectations, demand destruction for many things could ensue in things like beef and gasoline. Others argue that the monetary effect of central bank easing efforts will ultimately cause commodity prices to move higher.

From a technical point-of-view, the Reuters/Jefferies CRB Total Return Index (CRB) has moved solidly above key “cross” trend line resistance despite overbought conditions on weekly charts. The real question from this vantage point, however, is whether the CRB can extend further and then break above primary downtrend resistance (drawn off the 2008 all-time high of 473.97) that currently sits at 320.00. A break above that downtrend would suggest that central bank stimulus might support a turnaround in global growth expectations. On the other hand, the failure to do so could be a glaring hint that fiscal restraint accompanied by price deflation might emerge instead.

Can The KRB Bank Index Break Above Key Downtrend Resistance?

Posted in Keefe Bruyette & Woods U.S. Bank Index (BKX) on August 23rd, 2012 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

Most analysts believe for the overall stock market to extend higher and for the economy to grow, a healthy banking system is a must. And for the banking system to stay healthy, it must have the opportunity to make profitable loans at a reasonable “spread” (over the bank’s “cost of money”.) With the yield curve steepening over the past few weeks, the bullish outlook on banks and bank stocks has improved. Last week’s yield curve steepening, although more costly for long-term borrowers, has helped banks capitalize on wider loan margins. That, in turn, can be seen by a rise in the KBW bank Index (BKX) since the first week in June.

With the Jackson Hole conference slated to be held later this month, there is always the possibility the Federal Reserve could announce the initiation of another round of QE, or an extension to “operation twist”, which could reverse the recent yield curve steepening. On the other hand, an outline of policy change by the ECB’s Mario Draghi could take the pressure off Fed Chairman Bernanke to do anything at all, particularly in front of the November elections.

In turn, the absence of any new tinkering by the Fed could help lift the BKX above key downtrend resistance at 48.50 and “take aim” at an eventual test of “mid-channel” resistance currently sitting at 57.70 (but rising over time).

From a technical point of view, the potential of a “break” above 48.50 on the BKX is there, particularly since overbought conditions are not present. That being said, a worsening of the jobs data over the near-term could force the Fed’s hands to make another policy move. That, in turn, would likely mute the upside potential for bank stocks, and equity prices in general.