Archive for November, 2012

Oil Service Sector Points To An Economic Slowdown

Posted in Philadelphia Oil Service Sector Index (OSX) on November 14th, 2012 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

With the elections now over, Congress will soon return to Washington to deal with the “fiscal cliff” which is clearly “center stage”. Given the tumult that occurred during the summer of 2011 regarding to the attempt to increase the “debt ceiling”, investors could now retreat amid a daily spate of speculation as to how things might fiscally get resolved.

Due to an anticipated change in tax policy, dividend-paying stocks, like utilities, telecoms and REITs have already begun to feel the pressure. So have “oil service” stocks, which generally do not pay high dividends, but instead are more of an indicator of economic activity. They tend to be highly sensitive to the level and direction of energy prices in general. They typically rise as economic activity increases, but fall when economic activity slackens and are viewed as a barometer of the country’s economic heath.

Interestingly, the Philadelphia Oil Services Sector Index (OSX) has been heading lower since mid-September and continues to decline. Also of interest is that it appears to be headed for a test of key “cross” trend liner support currently at the 188.70 level. This trend line has held up as support each time the OSX has had a serious pullback since 2001 except, of course, for the period between 2008 and 2009 when the equity markets were in full retreat.

Worthy of note is the observation that each time this “cross” trend line was tested, weekly stochastic oscillators were in an oversold condition, which suggested that sellers were exhausted at those points in time. Buyers were then able to step in, snap up some bargains and help reverse the direction of the OSX to the upside.

At this point, however, weekly stochastic oscillators are not close to being in an oversold condition, which is mildly worrisome. This set-up could be a hint that the 188.70 support level may not hold off sellers off this time around. In turn, a break lower would suggest that the economy could come under more pressure than conventional wisdom currently expects.

Nevertheless, more time is needed to see what policies might become adopted on Capitol Hill. Hopefully, if Congress forges an agreement, the 188.70 area will hold as support.

Trouble Brewing For The S&P 500 Index

Posted in The S&P 500 Index (SPX) on November 7th, 2012 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

With the Presidential election at hand, the S&P 500 Index (SPX) appears poised for a solid move to the downside. A set of negatively positioned technical indicators on weekly charts combined with a bearish divergence on the weekly MACD oscillator (Moving Average Convergence/Divergence) suggests that a move lower is likely. A break below key trend line support currently at 1,403 would add to this bearish set-up, if it were to occur.

Although recent domestic economic reports have been rather upbeat, including October’s jobs report, rising consumer optimism and stronger-than-expected new home sales, this year’s elections and the “fiscal cliff” are important considerations for the investors to assess. They will decide what the tax rates will be on earned and unearned income as well as the levels of marginal tax rates for businesses, payroll taxes, capital gains taxes and estate levies. Given those issues, equity markets should favor Romney. Longer-term interest rates on bonds, on the other hand, could begin to rise briskly after a Romney win since he is likely to favor an eventual replacement of Fed Chairman Bernanke and a change in monetary policy. An Obama victory, however, could have a depressing effect on dividend paying stocks, but boost prices for tax-exempt municipal bonds.

On another front, recent global factors could add to a bit to investor uncertainty even though the U.S.elections will soon be decided. The likelihood of a new round of contentious Greek austerity measures appears to be rising rapidly. Syrian tanks entering into the demilitarized zone in the Golan Heights are raising fears that Syrian conflict could enter Israel. In Japan, pressures for Prime Minister Yoshihiko Noda to dissolve parliament and hold elections this year are intensifying. This reflects rapidly declining popular support for Noda’s government in front of Japan’s mounting debt imbalances.

Separate from those issues are the recovery efforts now beginning in the aftermath of Hurricane Sandy, which should provide both negative and positive slants to the overall economic picture in the weeks and months ahead.

In any event, the S&P 500 Index appears to headed lower following a number of disappointing quarterly earnings reports and forward profit guidance. A rising U.S. dollar and a “nor’ easter” heading toward the New York/New Jersey/New England area by mid-week should not help investor enthusiasm either.