Archive for December, 2012

Will The Dow Jones Transportation Index Break Higher?

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

By Jim Donnelly, Olson Global Markets

After being mired in a narrow, but declining trading range (that looks a lot like a “bull flag”) for almost a year, the Dow Jones Transportation Index (DJT) appears to be in position to “breakout” and finally take aim at a test of long-term “channel top” resistance now sitting at 5,675. For that to happen, a move above key resistance at the 5,233 has to take place.

Long-term (monthly) stochastic and RSI oscillators have already triggered “buy” signals, which is encouraging. The discouraging problem is that the Moving Average Convergence/ Divergence oscillator (MACD), however, is still on a “sell” signal and has been diverging bearishly from price for nearly six years.

Nevertheless, a break above key resistance at 5,233 could trigger “follow-through” buying over the intermediate-term and force the DJT higher, perhaps up to an eventual test of “channel top” resistance.

Dow theorists would welcome such an outcome, since it would “confirm” the bullish move already made by the Dow Jones Industrial Average this year. Marginally lower energy costs, a 4-1/2 year high in the Conference Board’s Consumer Confidence Index (at 73.7 in November 2012 versus 76.4 in February 2008), tight airline seating capacity (meaning stronger pricing power) and rising import cargo volumes on domestic railways (despite a strike at one of the nation’s largest port complexes) have helped to brighten near-term expectations for the DJT.

If a break above 5,233 and a subsequent move up to 5,675 were to take place, the move would represent an 8.45% gain from current levels. That being said, once reached a move above 5,675 could prove to be a very difficult matter, particularly if economic activity were to slow, or if energy costs were to begin to rise again. For now, however, a move to the upside in the Dow Jones Transportation Index appears to be more likely than not.


Is The Correction In Utility Stocks Over?

Posted in Dow Jones Utility Index (DJU) on December 12th, 2012 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

When looking at the weekly chart of the Dow Jones Utility Index (DJU), it does look like an intermediate-term bottom in utility stocks has been made. Oversold conditions combined with a rebound off key trend line support at 437.57 suggest that a move back into the utility sector by investors may now be underway.

Since early August, a period of weakness had occurred in the DJU due in part to softness in demand for electricity. A pre-“fiscal cliff” aversion to dividend paying stocks in anticipation of a hike in taxes on both dividends and capital gains also weighed on utility stocks as well.

With anemic domestic growth still at hand however, and acting as a drag on demand for electricity, the likelihood of a possible QE4 stimulus plan could be announced as early as this week. Such a monetary program would replace “operation twist”, which is a sanitized bond buying scheme where the Fed sells short-dated securities and buys longer dated bonds. QE4 would instead increase the amount of outright purchases of either Mortgage-Backed Securities (MBS) or longer dated treasuries …up from the current program of buying $40B of MBS per month.

If the Federal Reserve does announce QE4 soon, a move back into dividend paying stocks, such as utilities, could be triggered with income starved pension plans as well as retirees looking to replace CD income or interest from older higher yielding bonds that have matured or have been called away.

In addition, some analysts suggest that the announcement of QE4 could be a hint that the Federal Reserve might keep short-term interest rates near zero percent for a longer period of time than is currently expected by investors. In turn, that might suggest that even if a political agreement over the “fiscal cliff” was to be struck, worries over lackluster global growth might persist as tax increases and government spending cuts ensue. Of course, this type of scenario carries with it a whiff of deflation, which is probably what Fed is really worried about.