Archive for September, 2013

Dow Jones Transportation Average Retesting Key Resistance

Posted in Dow Jones Transportation Average (DJT) on September 25th, 2013 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

Despite overbought conditions on monthly charts, the Dow Jones Transportation Average (DJT) is again testing long-term trend line resistance now at the 6,755 level. No doubt, the Fed’s unexpected decision to keep the level of security purchases at an $85 billion monthly clip has played a big roll in the current vibrancy.

Continued strength in railroad and airline stocks and a recent display of strength in shipping stocks have also contributed to the strength in the DJT.  While the degree of domestic and global economic strength is an on-going debate, it is clear that a series of reports from China, Japan, Europe and of course the U.S. have demonstrated that freight, cargo and passenger profitability is gaining some traction.

Still, a political showdown in Washington over the debt ceiling and Obama-care that threatens a government shutdown is now brewing. And while the U.S. involvement in the Syrian crisis as been toned down quite a bit, it has not really gone away. Moreover, there are a number analysts, investors and CEOs that see growth expectations muted right now. If that assessment is accurate, further upside gains in the DJT might be restrained as well.

It might be worth pointing out that since 1996, the DJT tested this key trend line resistance in 1997 and again in 1998, just before Russian ruble collapsed and triggered  a crisis on Wall Street due to leveraged positions at Long Term Capital Management. The next time this same trend line was tested was in 2007 and (almost) again in 2008 just before the housing/banking crisis hit Wall Street. No doubt, the fact that the DJT is again testing this same resistance barrier is troubling to economic historians.

The technical set-up on long-term charts of the Dow Jones Transportation Average clearly favors a correction to begin soon. In a world where it does not reward investors to fight-the-Fed however, a breakout to the upside would likely catch a number of investors off-sides.

One last wrinkle to consider is the roll that the Dow Jones Transportation Average playing in Dow Theory. It purports that transportation stocks must lead industrial stocks in order to advance a bullish trend. Thus, a break above key long-term trend line resistance currently at 6,755, could ignite a broad-based advance in equity prices, if it occurs. If it does not however, a period of distress could emerge instead.


S&P 500 Index Approaching Key Resistance …Again!

Posted in The S&P 500 Index (SPX) on September 18th, 2013 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

Amid a series of political difficulties, the advent of both the taper and Obama-care and with the naming of the successor to Federal Reserve Chairman Ben Bernanke immanent, the S&P 500 index (SPX) resumed its grind higher last week closing at 1,688. That being said, the SPX is now re-approaching a test of long-term trend line resistance now sitting at 1,732. Although overbought conditions are not now present on the weekly time frame, a bearish MACD divergence has been triggered on weekly charts with weekly stochastic studies still on a sell signal.

A slow but steady expansion in GDP, marginal gains in employment and a low inflation environment has helped ignite some consumer discretionary stocks such as automobiles. Others, particularly in the apparel sector, have been in retreat perhaps taking a back seat to the consumer demand for more costly purchases of durable goods.

An apparent agreement with Russian officials over the use of chemical weapons in Syria may have diffused a difficult situation for the U.S. administration, which could be a plus for equity prices in general. Equity traders may have already made an adjustment to a rise in 10-year treasury yields as well, particularly in the wake of the stronger-than-expected quarterly refunding auction held last week. And while the rancor over Obama-care is persistent and still present, worries over its implementation have likely been priced into the equity markets too.

As a result, the odds currently favor a move up to a test of key technical resistance in the 1,732 area, after which a correction (or digestive process) could then occur. Such an adjustment if it were to occur however, would likely be based on Q3 earnings which will begin to be announced in just a few weeks from now.