Archive for October, 2013

S&P 500 Index Diverging Bearishly

Posted in The S&P 500 Index (SPX) on October 17th, 2013 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

In the absence of an agreement in Washington, as well as an absence of fresh economic data from the U.S. Bureau of Labor Statistics, equity prices have responded to hints and whispers from various political sources last week with wide swings. And although equity trading ended the week on an upswing with a sense of optimism that an agreement would be reached, the technical set-up of the S&P 500 index (SPX) is a bit troublesome.

While there is an opportunity for the S&P 500 index to move higher and possibly test key (upward sloping) trend line resistance currently sitting at 1,744, bearish technical divergences are now present on both weekly MACD (Moving Average Convergence/Divergence) and weekly RSI (Relative Strength Indicator) studies. A bearish divergence is a reflection of the fact that the S&P 500 index (SPX) itself has moved irregularly higher to successively higher peaks, with corresponding highs in the underlying technical indicators rising, but to consecutively lower peaks.  When a set-up like this occurs, technical analysts are generally on the alert for corrective price action to the downside.

Another concern would arise if the S&P 500 index (SPX) were to break below key trend line support currently at 1,645. Such a break would raise the likelihood of a possible move down to a test of key trend line support now sitting at 1,540.

In order to offset the implications of this bearish technical scenario, a burst of optimism triggered by either an agreement in Washington, or a series of better-than-expected Q3 earning results, or both would have to lift the S&P 500 Index well above resistance currently at 1,744. With the potential crisis date of October 17 quickly approaching, and with a series of earnings reports due out this coming week from a host of major companies, a resolve to these potential triggers should emerge soon.

Q3 earnings due to be reported this week include: American Express (AXP), Bank of America (BAC), Citigroup (C) , Google (GOOG), Goldman Sachs (GS), Intel (INTC), Johnson & Johnson (JNJ), Coca-Cola (KO) Pepsi (PEP) and Yahoo (YHOO).


Philadelphia Gold & Silver Index Re-Approaching Long-Term Support

Posted in Philadelphia Gold/Silver Sector Index (XAU) on October 10th, 2013 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

As politicians in Washington D.C. dig in their heels in one of the most partisan showdowns in recent memory, the prolonged battle over a continuing resolution on the budget, Obama-care (and later on the debt ceiling) raises the likelihood that the Fed will stay with their monthly $85 billion security purchasing program for a longer period of time than had been expected.

Moreover, the absence of any near-term agreement in Washington could increasingly become a drag on the economy as already evidenced by a partial government shutdown. This, in turn, could send both the Dollar Index (DXY) and 10-year U.S. Treasury note yields lower. On the other side of the ledger, such a set-up could induce investors to move back into the precious metals market and into the gold and silver in particular.

Long-term monthly charts show that the Philadelphia Gold & Silver Index (XAU) is again approaching a test of long-term trend line support currently at the 84 level with oversold conditions present. This is a technical set-up that generally favors a buy-on-weakness strategy over the near-to-intermediate term.

And while seasonal purchases of gold in India (the largest purchaser of gold in the world) has been muted since June due to a sharp setback in the Indian economy and stock market, the suggestion of a decline in U.S. interest rates could help to buoy emerging market economies (including India) as sovereign credit spreads and their trade deficits begin to narrow.

When looking at the charts of gold miners, a number of basing patterns also appear to be developing. For example, a bullish reverse Head & Shoulders pattern seems to be developing on Barrick Gold Corporation (ABX). That pattern targets a move up to the $29 area from $18 currently. In addition, the charts of both Gold Corp (GG) and Newmont Mining (NEM) show that their respective prices are now approaching long-term trend line supports on each.

As a result, a buying opportunity on the XAU appears to be unfolding which should prove to be a rewarding experience over the not-to-distant future.