Archive for December, 2013

Has the S&P 500 Index Broken Out Yet?

Posted in The S&P 500 Index (SPX) on December 23rd, 2013 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

While it is true that the S&P 500 Index has hit new all-time highs for each of the past six (6) weeks, the S&P 500 Index (SPX) has not yet broken above key “channel top” resistance. And while the bullish trend remains in place with the SPX rising “from the lower left to upper right” on weekly charts, the pace of the upward movement has been limited by “channel top” resistance (currently at 1,843).

Some observers suggest that Fed stimulus will remain in place for quite a while despite the beginning of the tapering effort starting in January. Nevertheless, a number of well-known investment professionals also suggest that upside price activity will likely be limited to a range of 4% to 10% in 2014 following this year’s stunning gains. Others warn (or perhaps pray) that a 10% to 15% market correction is long overdue.

Fundamental positives include: lots of idle cash on the sidelines; the likelihood of further corporate stock buy-backs schemes and dividend increases; further job gains; the beginning of increased capital expenditures; further strides toward energy independence; more household formations followed by a rise in home building; diminished political dysfunction in the U.S.; and of course, near-zero percent short-term interest rates with lots of liquidity provided for some time to come (don’t fight the Fed!).

The negative side of the ledger sheet includes: the negative impact of Obama-care to many individuals; growing wage disparities muting consumer spending; worries that economic conditions in Europe will not improve; growing political tensions and saber-rattling between a number of Asian countries; rising concerns over the disinflation/deflation debate keeping idle cash on the sidelines in a capital preservation effort; continued debt deleveraging limiting economic expansion; and the possibility of profit margins getting squeezed.

From a technical point-of-view a break above “channel top” resistance currently at 1,843 would be an impressive bullish surprise if it occurred, particularly with of persistent overbought conditions present. A failure to break higher, on the hand, could give way to a pullback with the initial target sitting at 1,724. That being said, a pullback to 1,724 would represent only a modest 4.7% correction. A break below 1,724, on the other hand, would likely increase the chance that a move down toward trend line support currently sitting at 1,554 (or a 14.5% decline) could occur instead. For now however, the S&P 500 remains with a bullish bias.


Is the NASDAQ 100 Index Ready to Begin A Correction?

Posted in NASDAQ 100 Index (NDX) on December 19th, 2013 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

When looking at the weekly chart of the NASDAQ 100 Index (NDX) it is easy to see that it is now testing key trend line resistance at the 3,524 level accompanied by overbought conditions. In particular, weekly stochastic studies are in a very overbought condition with %D and %K readings of nearly 97 and 94.35 respectively. And while overbought conditions can persist for a long time, the unease over the timing and size of the anticipated taper coupled with a change at the helm of the Federal Reserve itself might just be the reason (or excuse) for investors to take profits and trim positions.

Still, an extended rise in longer-term interest rates, whether as a result of a strengthening economy or as a result of a reduction in security purchases buy the Fed, could have an adverse impact on home purchases and related product sales.

If a correction in the NDX were to occur, some attention should be paid to some of its key components including: (AMZN); Facebook (FB); Google (GOOG); (PCLN); Seagate Technology (STX); and Western Digital (WDC) which are each trading near their all-time highs. A pullback or two within this group of names might be seen as a hint that a more broad-based decline could be at hand.

In any event, key support for the NASDAQ 100 currently sits at the 3,039 level representing a potential 491-point drop (or a 13.9% pullback) if a sharp correction were to unfold. Over time, however, this trend line will rise and therefore mitigate the potential severity of a setback on the margin.

That being said, the big surprise in this entire scenario would be a solid break above key resistance currently at the 3,530 level occurs which, in turn, would likely catch a number of investors/traders/analysts very much off sides. Nevertheless, the technical set-up does favor the odds for a corrective pullback to unfold over the short-term.