Archive for April, 2013

Philadelphia Gold & Silver Index Aimed At Long-Term Support

Posted in Philadelphia Gold/Silver Sector Index (XAU) on April 23rd, 2013 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

Amid deeply oversold conditions, the Philadelphia Gold & Silver Index (XAU) appears headed lower still and likely aimed for a test of key long-term trend line support currently sitting at 78. Although that level represents a 24% discount from Friday’s 102.89 close, the current “free fall” in the XAU appears eerily similar to the 2008 plunge that occurred between July and October of that year when a rush to liquidity was triggered by housing/banking crisis then.

In the absence of such a crisis today, some observers suggest that worries over the threat of hyper inflation are overblown. Others point to a renewed concern that a period of deflation might emerge instead. Interestingly, this shift of market psychology has occurred despite the Fed’s current $85B monthly asset purchase policy and the Bank of Japan’s new initiative to double the amount of Yen in circulation.

An 18-month slump in European auto sales highlighted by last month’s 10.2% year-over-year dive in new car sales coupled with record high European unemployment of 12% has likely weighed on commodity prices in general. It may also be the reason why growth expectations in China have been pared back.

While economic activity in the U.S. has continued to provide modest growth despite a recent spate of weaker-than-expected reports, last week’s release of the Fed’s “Beige Book” may have triggered some caution with its upbeat outlook on future economic expectations. Ironically, a better economic climate later in the year could cause the Fed to reduce its asset purchase program. Under that kind of scenario, interest rates could theoretically rise making the alternative of holding precious metals less attractive over time.

In any event, a move toward the 78 area on the XAU (a composite of sixteen precious metals mining companies) might nevertheless prove to be an attractive buying opportunity as market forces push weak investors out of the metals mining sector.


Oil Service Sector Points To An Economic Upswing

Posted in Philadelphia Oil Service Sector Index (OSX) on April 17th, 2013 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

Although a number of commodity prices fell last week, the Philadelphia Oil Services Sector Index (OSX) continued to edge higher and is now on the brink of breaking above primary downtrend resistance at the 254.50 level. This downtrend, which dates back to its July 2008 peak of 364.26, carries some importance since its peak happened to occur just prior to the Federal Housing Finance Agency (FHFA) placing Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs) into conservatorship as the U.S. home mortgage market ran into massive financial troubles.

Conversely, current conditions of home building activity appear to be improving with long-term 30-year mortgage rates falling to the 3.54% level last week, slightly higher than their 3.31% all-time low reading set last November.

Although there may mot be a direct correlation between these two sectors of the economy, a solid break above resistance on the OSX would at the very least suggest that domestic economic activity will likely pick up heading into the spring months. Moreover, a break higher might also be seen as an indication that nervousness over future demand for energy, including deep water discoveries, has abated somewhat.

Technically, the absence of overbought conditions on long-term charts hints that if a break above key resistance at 254.50 does occur, a move up to a test of key trend line resistance currently sitting at 282 would likely unfold.

This scenario, of course, is positive for equity prices in general since it underscores growing confidence that economic activity will expand. The failure to break above 254.50 would, on the other hand, be a piece of the puzzle that equity bulls would sadly miss.