Archive for October, 2012

U.S. Dollar Index Likely To Rise

Posted in U.S. Dollar Index (DXY) on October 31st, 2012 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

After slumping from the July 24 high of 84.10, the U.S. Dollar Index (DXY) appears to be in position to make a new move higher. Oversold conditions on weekly charts combined with a successful test and rebound off former downside resistance (now support) at 78.50 raises the likelihood of a solid move to the upside, and a possible test of key trend line resistance near 86.30.

Helping the dollar recently has been: a better-than-expected 2.0% rise in Q3 GDP; a 5.7% rise in new homes sales (as well as an 11.7% rise in the median price of a new home); a climb in the Michigan Consumer Sentiment Index to 82.6 (its higher reading since September 2007); a 5-year high in German Consumer Confidence; and a decline in energy prices, particularly a 2-week 24-cent decline in the national average price of gasoline (from $3.82 to $3.58). All of these factors suggest that the economic climate in the U.S.continues to improve.

Worries of possible regime changes in China, Japan and North Korea could give the greenback a boost over the short-run as well. Slow moving structural reforms in Europe might also blunt the recent rise in the Euro verse the dollar in coming weeks. Still, it will likely be the post U.S. Presidential election period that determines how quickly Congress will tackle issues that impact the “fiscal cliff”.

That being said, even if the “fiscal cliff” was to be addressed with bi-partisan sponsorship, any gain that the DXY might make, could on the margin crimp corporate profits. In turn, that could put downward pressure on equity prices over the intermediate-term and flatten the yield curve if investors decide to shift to longer dated maturities.

Nevertheless, addressing the “fiscal cliff” in a workable and tactful way will help equity prices over the longer-term and held stimulate steady economic growth as well. It’s just the next few months of possible rancor, acrimony and (in the end) agreement that could be troubling for investors, employers and taxpayers at large.

Dow Jones Utility Index Catches A Second (Bullish) Wind

Posted in Dow Jones Utility Index (DJU) on October 24th, 2012 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

After having been one of the star performing sectors of 2011, utilities stocks have lagged badly behind this year (2012), posting a miserly 3.1% gain year-to-date. That said, the current weekly chart of the Dow Jones Utility Index (DJU) reveals that it has recently rebounded off of key trend line support at 466.37 and appears to be in position to make a new “leg” higher. If it does, it could begin a renewed move toward the 525 area, which happens to the “target” of a bullish “reverse head & shoulders” pattern that developed between 2008 and 2010.

Although there is an argument to be made that utility dividend yields are not as juicy as they were a couple of years ago, they still look attractive given Fed Chairman Ben Bernanke’s plan to keep short-term interest rates near zero through at least mid-2015. Moreover, yields on telecom giants ATT (symbol: T) and Verizon (symbol: VZ) have declined by roughly 40bps since May to 5.00% and 4.60% respectively with yields on many utility companies holding steady or even moving up a little during the same period. That, of course, was due to a rise in telecom stock prices and a dip in utility stock prices.

Nevertheless, the Dow Jones Utility Index appears to be ready to make up for some lost ground. High yielders within the Dow Jones Utility Index now include: Exelon (EXC at 5.70%), First Energy (FE at 4.80%), Duke Power (DUK at 4.70%), PG&E Corp. (PCG at 4.30%), American Electric Power (AEM at 4.20%) and Southern Company (SO also at 4.20%).

Utility names that are not part of the Dow Jones Utility Index include: Pepco Holdings (POM at 5.70%), PPL Corp. (PPL at 4.80%) and Unitil Corp. (UTL at 5.10%).

The Federal Reserve’s plan to extend its zero percent policy through mid-2015, to extend operation twist until the end of the year, and to buy $40 billion of mortgage backed securities for an indefinite period of time should keep a floor under utility prices for some time to come. In turn, that should entice “yield seekers” to consider buying utility stocks for a period of time as well.