Dow Jones Industrial Average Nearing Key Resistance Zone

By Jim Donnelly, Olson Global Markets

Despite disappointing quarterly reports from the likes of Google, American Express and Capital One, better-than-expected results from IBM, Microsoft and Intel helped power the Dow Jones Industrial to a 298.40 point gain or a 2.4% jump for the week. Adding to the upbeat mood was an unexpectedly sharp drop of 50,000 in initial jobless claims, the biggest drop seen in six years. A pullback in energy prices, particularly natural gas was also seen as a plus for consumers.

Although negotiations between the government of Greece and experts representing the private banks and investors (designed to reduce the Greek debt burden) remain unresolved, stronger-than-expected demand for short-term Spanish and Italian sovereign debt issues last week were clearly welcomed by investors. That was evidenced by a modest rebound in the Euro, as well as a decline in the U.S. Dollar Index (DXY), which it turn helped to lift U.S. equity prices at the expense of pushing domestic bond prices lower.

In any event, the Dow Jones Industrial Average is now approaching a test of an important technical zone that now sits between 13,650 and 13,750. With overbought conditions at hand on weekly charts, a move above this area does not appear to be a good bet over the near-term. On the contrary, it might prove to be a key sticking point with a number of potentially upsetting political events currently on the horizon. The resumption of the battle over the payroll tax relief extension plan, a more muddled Republican Primary picture heading into Florida, combined with worries over this week’s longer-dated German and Dutch debt auctions absent a resolve to the Greek debt crisis could team up to cause investors to take a pause.

Leave a Reply