Oil Services Sector Approaches Key Resistance; Can It Break Higher?

Posted in Philadelphia Oil Service Sector Index (OSX) on April 7th, 2014 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

On weekly bar charts, the Philadelphia Oil Service Sector Index (OSX) is now approaching a test of key “cross” trend line resistance located at the 299 level. With overbought conditions present as well, a technical setup such as this would normally argue for a correction to occur after key resistance is tested. Moreover, a number of fundamental energy analysts are now suggesting that a sharp pullback in oil prices could emerge soon. If it does, a rejection of price from the 299 level could paint a troubling picture for oil companies in general.

Nevertheless, from a technical point of view there are a number of the components within the OSX index that appear poised to move higher. Clearly Diamond Offshore Drilling, Inc. (DO) and Transocean Ltd. (RIG) are each in oversold conditions, having been crushed by the BP Gulf of Mexico oil spill in 2010. Still, both are near their 10-year price lows and are each responding with basing price activity. Others, such as Weatherford International Ltd. (WFT), Rowan Companies (RDC) and Ensco (ESV) have already rebounded from their respective lows and appear to be in position to extend much higher.

Clearly, names like Halliburton (HAL) and Helmerich & Payne, Inc. (HP) have soared since their lows of June 2012 with momentum investors still involved. As a result, a test of key resistance at 299 on the Philadelphia Oil Service Sector Index (OSX) could be met with profit taking. On the proverbial other hand, a solid break above 299 could propel the OSX to much higher levels and possibly take aim at an eventual test of key trend line resistance currently sitting near the 358 level (but rises over time).


Has The Rally In Japan’s Nikkei 225 Run Out Of Steam?

Posted in Nikkei 225 Index (N225) on March 30th, 2014 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

In the year that followed the stimulus program initiated by Prime Minister Shinzo Abe of Japan in December 2012, the Nikkei 225 equity index rallied nearly 57% by the end of 2013. That stimulus program, which triggered the torrid rally of 2013, incorporated the economic policies of Prime Minister Abe, known as Abenomics. It consisted of three key initiatives, which included fiscal stimulus, monetary easing and structural economic reforms.

Nevertheless, by the end of 2013 the Nikkei 225 index could not rise above long-term trend line resistance at 16,320. Moreover, the Nikkei 225 also broke below steep upward sloping trend line support at 15,380, which suggests that a correction has likely begun.

A mild shift away from risk assets coupled with a moderate run into safer assets has given the Japanese Yen a modest lift in recent weeks with Dollar/Yen strengthening from 105 at the beginning of 2014 to 102.50 on Friday. This strength, however, pales in comparison to the decline in Dollar/Yen that saw it retreat from 83 in December 2012 to 105 by the end of 2013. Nevertheless, recent Yen strength could become more pronounced if global political tensions continue to increase. Such a scenario would, in turn, make Japanese exports less competitive and could erode equity values in the process.

Another economic issue that is lurking around the corner is the Japanese national sales tax, which is set to rise to 8% in April from 5% currently. While some observers expect to see the negative side effects of the sales tax hike to dissipate within 9-to-12 months afterwards, a near-term slump in consumer spending is nevertheless likely.

For now, a sell-into-strength trading strategy regarding the Nikkei 225 is likely to prevail over the short-to-intermediate term.