Archive for September, 2012

Reuters/Jefferies CRB Total Return Index Fails To “Breakout”

Posted in CRB Total Return Index (CRB) on September 28th, 2012 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

With the Federal Reserve’s latest monetary stimulus plans known for more than a week, the expected effect of Fed Chairman Ben Bernanke’s unprecedented “QE infinity” did help left equity and precious metals prices last week.  Interestingly, however, energy prices failed to “follow through” and declined instead as did the Reuters/Jefferies CRB Total Return Index, which had been on the “verge” of breaking above primary downtrend resistance at 321.26.

Overbought conditions on weekly charts might help explain the failure for a “breakout” to occur at this time. Perhaps a “sell on the news” reaction to the Fed’s plans was a knee-jerk impediment as well. Whatever the reasons were, an extension to last week’s CRB pullback appears likely in the weeks just ahead. Encouraging such an extension lower could be a “wait and see” posture adopted by investors in front of the U.S. presidential election. Increasing concerns over the fiscal cliff, rising tensions in the Middle East and closer scrutiny of Mario Draghi’s conditional bond buying strategy remain unsettling factors as well.

From a technical point-of-view, the CRB index’s decline might soon result in a test key trend line support at the 296 level. If the CRB index holds at 296, and then begins to reverse to the upside, visions of a mid-market “reverse Head & Shoulders” pattern could unfold. In that case, the 321-322 area would be seen as “neckline” resistance with an objective sitting near 375.

On the other hand, if 296 fails to hold as support, a new “leg” lower, perhaps down to a test of key “cross” trend support near 270 could result instead. That, of course, would likely conjure up renewed worries over the prospect of “deflation”.

Was It A “Game Changer”?

Posted in Dow Jones Transportation Average (DJT) on September 19th, 2012 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

Last Thursday’s Federal Reserve announcement to buy $40B of Mortgage Backed Securities each month for an unlimited length of time; to extend the 0%-to-0.25% fed funds rate out to at least mid-2015; and to continue “operation twist” until the end of this year was certainly the most aggressive “bazooka” used to date. No matter how much of this package had already been “discounted” by investors, the initial response was a sharp drop in the dollar, a rally in commodity prices, and a jump up in equity prices, particularly in the financial, metals and energy sectors.

In reflection of this recent optimism, the S&P 500 Index (SPX) broke and closed the week above key trend line resistance (at 1,451) as did the KBW bank Index (BKX) and the NYSE Arca Oil & Gas Index (XOI). The rally in the Dow Jones Industrial Average (DJIA) did result in a test of its key resistance at 13,650, but failed to hold above it for more than 10 minutes. Overbought technical conditions are now clearly present on all on these indices.

While it is well known that overbought conditions can prevail for some time as markets climb the proverbial “wall of worry”, these overbought conditions are presenting themselves at a time when investors are observing an unusually uncertain set of circumstances. Spreading violence in the Middle East and $4 gasoline prices; a “neck and neck” race for the presidency; the unwillingness of Congress to address the “fiscal cliff” problem before the elections; and the fragile hope that Mario Draghi and the Euro Zone will begin in earnest to address their sovereign debt issues are still on the investor radar screen.

According to Fed Chairman Bernanke, these measures just announced by the Fed were designed to address important “Main Street” issues by trying to step up the recovery in the economy and in turn, improve the employment picture. Interestingly, the University of Michigan and Thomson Reuters preliminary consumer sentiment barometer leaped to an unexpected 79.2 reading from a final August level of 74.3 despite a last month’s underwhelming employment data and rising fuel costs.

Nevertheless, if the Fed’s goal is to further jump-start the economy, a solid break above key resistance at the 13,650 level on the Dow Jones Industrial Average, along with confirmation from the Dow Jones Transportation Index (DJT) should unfold. At the moment however, the Dow Jones Transportation Index is positioned more bearishly than one would like. As a result, the jury is still out.