Archive for November, 2012

S&P 500 Index Aimed At A Retest Of Key Resistance?

Posted in The S&P 500 Index (SPX) on November 28th, 2012 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

The answer is maybe. Technically, weekly stochastic and MACD oscillators remain bearishly positioned, with MACD clearly diverging bearishly away from price. Last week’s surge in the S&P 500 index (SPX), however, lifted it to a test of key trend line resistance currently at sitting the 1,410 level. A solid break/close above that level could result in an extension of last week’s rally, with a possible retest of key trend line resistance at 1,494 in the offing. Any further gains from that area, however, would catch many investors off guard, particularly heading into this year’s final weeks.

Optimism that an agreement designed to avoid the “fiscal cliff” before the end of the year was clearly a factor. A broad-based rally led by the homebuilders sector, a “cease fire” in Gaza, an upturn in Chinese manufacturing  and a rise in German business confidence were all welcomed news to the equity markets.

That said, the expectation that earnings could struggle next year amid sluggish economic growth, highlighted by a rise in taxes combined with a set of government budget cuts could limit upside gains in the S&P 500 index next year. Perhaps that is what the bearish divergence in weekly MACD (Moving Average Convergence/Divergence) is telling investors to be wary of.

KBW Bank Index Threatens To Break Lower

Posted in Keefe Bruyette & Woods U.S. Bank Index (BKX) on November 21st, 2012 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

With the Keefe, Bruyette & Woods U.S. Bank Index (BKX) already off 8.6% from its September 14 high (6.9% of which has occurred since the election), the BKX index is on the verge of breaking below key trend line support at 46.15. If it does, it will increase the “risk” of a possible test of key “channel bottom” support that currently sits at 40.

What is a bit worrisome is that the S&P 500 Index, which has lagged modestly behind the BKX, has posted declines of 7.8% from its September 14 high, and 4.8% since the election. If the relationship holds, more downside price action in the S&P 500 will likely follow. Since most analysts believe that a healthy banking system is a must for the equity markets, another move lower could be a hint that economic growth may soon begin to decelerate.

Clearly, hopes of a bipartisan agreement to head off the ills of the “fiscal cliff” are a factor. However, in recent days, increased military tensions in Gaza, along with a warning by the International Atomic Energy Agency that suggests Iran is technically in position to rev up its production of enriched uranium have added to investor uncertainty. This, of course, is happening just in front of the busiest retail season of the year.

For now, keep an eye on the Keefe, Bruyette & Woods U.S. Bank Index (BKX). A bearish trend line break could trigger higher price volatility, reduced trading activity and an extension to the downside on the S&P 500 Index as even more investors move to “the sidelines”.