Archive for August, 2012

NYSE Arca Oil & Gas Index (XOI) Could Break Above Key Downtrend

Posted in AMEX Oil Index (XOI) on August 16th, 2012 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

In the wake of a series of data that suggests a global economic slowdown may be accelerating, the NYSE Arca Oil & Gas Index (XOI) continued to push higher. Moreover, it could soon challenge key downtrend resistance currently sitting at the 1,300 level. In the absence of an overbought condition on weekly charts, this technical set-up is interesting and, perhaps, at odds with growing evidence of global weakening.

The XOI index is comprised of 13 large global integrated oil and gas companies that include: Anadarko Petroleum (APC), Chevron (CVX), ConocoPhillips (COP), Exxon Mobil (XOM), Hess Corp. (HES), Marathon Oil (MRO), Occidental Petroleum (OXY), Petroleo Brasileiro (PBR), Sunoco (SUN) and Total (TOT).

While some reports suggest that slack global economic growth could restrain an increase in annual oil demand to a modest 900,000 barrels per day in 2012 and an increase of a lesser 800,000 barrels per day 2013 (to an average 89.6 million barrels per day in 2012 and 90.5 million barrels per day in 2013), general price increases would theoretically be tempered. Therefore, a solid break above key resistance at 1,300 might be viewed as divergent, particularly since weekly charts suggest that such a “breakout” could lead to much higher levels.

Nevertheless, the correlation of XOI to domestic employment, economic growth and the equity markets in general has been reasonably high in the past. As a result, a “breakout” to the upside on the XOI may prove to be a festinating indictor of future economic activity for the months and years just ahead.


CBOE Volatility Index (VIX) Approaching Long-Term Support

Posted in CBOE Volatility Index (VIX) on August 8th, 2012 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

With July’s employment data posting largely mixed, but better-than-expected results, the S&P 500 Index scored a nearly 26pt gain on Friday to end the week at 1,390.99. That was its highest reading since May 4 having jumped nearly 125pts since the beginning of June. Moreover, the CBOE Volatility Index (VIX) of the S&P 500 fell further last week and is now apparently taking aim at a retest of long-term trend line support currently sitting at the 13.50 level.

Although day-to-day price swings continues to dominate, the general trend of the S&P 500 Index remains positive. That being said, prolonged uncertainty over the European debt crisis, the outcome of this year’s presidential election and the inability of Congress to address the “fiscal cliff” issue until (realistically) after the November elections have passed has hastened a shift away from “risk” assets in preference of cash, cash equivalents or intermediate-term fixed income instruments by a number of investors. That same uncertainty has resulted in a shift toward dividend paying stocks within equity portfolios. As a consequence, retirees, pension funds and yield seekers who are in need of an income stream have been forced to accept lower rates of return on bonds and lower dividend yields on stocks. In turn, that has resulted in higher prices being paid for those assets. A byproduct of this shift has been the continuation of impressive gains registered in bond prices and dividend paying stocks at the expense of a number of growth stocks that have recently suffered unexpected setbacks. In addition, the desire to preserve capital by another set of investors has produced the phenomenon of “negative interest rates” currently being offered on a number of European sovereign debt issues.

Interestingly, this unusual investment setup has created an environment in which a bit of good news can trigger a sizeable daily gain in equity prices, followed by a return to a string of modest day-to-day retreats highlighted by a series of glum macro economic forecasts. Since the VIX is often referred to as the “fear index”, and given the inverse relationship it has with the direction of the S&P 500 index, higher equity prices accompanied by a decline in the VIX could play out for the remainder of the summer. But as the November elections approach, or if the European finance ministers find that an intensified crisis of confidence begins to grow before then, a move toward the 13.50 area on the VIX might prove to be a very attractive “buy”.