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Global Market Wrap:
Banks And Oil Companies Drag The Market Into The Red
Equity Futures: Dow -21.00. S&P -1.40. NASDAQ +1.00. Japan Nikkei +65.00. German Dax -5.00
U.S. Trade: On light trading volume, the major U.S. indexes are trading slightly below the breakeven line. Earlier in the day, the European equities spent the entire cash session trading flat, a pattern also observed in Asian trade.
The S&P 500 Index had lost 0.20% since the cash session started, bouncing from a 14-month high. The sell-off came only after crude oil plunged 2.50% on higher inventories and after the House Panel approved a new legislation that would allow the authorities to have greater influence in the financial system. This has been interpreted as negative news by investors, since tighter rules might affect the profit margin of most investment banks.
On the fundamental side, investors expected the ADP, Crude Oil Inventories and the Beige Book reports, but only the Crude Oil Inventories had influenced the market, while the other two passed unnoticed. This is an important swing from a few months back, when the ADP report was decisive in intra-day trade.
S&P Technical View: TheLFB Member Charts
Daily chart trend: Long. Main price points: 1100-1120. Looking for: Wave 5 or C top
The price structure on the daily chart is showing two valid scenarios. On the left side of the chart, it shows an impulse structure with five waves up from the 665 lows to the current highs. If this is the case, the wave 4 discussed on the weekly chart, below, will be rejected, since the fourth wave is a corrective wave, which means it cannot be sub-divided by a five wave move. However, in this scenario, a three wave push lower into a corrective blue wave 2, with a targets somewhere around 950 area is expected.
On the right side of the chart, we have a different picture, with a clear zig-zag correction, which is valid for a wave 4 scenario. In this case lower blue wave 5 will follow.
Overall, the current price structure signals for a coming turning point around 1120 area with at least three wave push lower, since the market is trading around the top of wave 5 or wave C leg.
Sector Moves: The downtrend was led by financial and energy shares, both subtracting important points from the market. Energy companies fell as crude oil plunged 2.5% after the Crude Oil Inventories report showed that stockpiles actually increased. As such, ConocoPhillips, Apache Corp, Devon Energy and Halliburton lost between 1% and 2%. In the financial sector, the declines were being led by Morgan Stanley, which dropped 3% and by Bank of America, which lost 1.95%
The two ultra-defensive sectors, healthcare and utilities were the best gainers in Wednesday trade. American Electric Power added 2.00% in intra-day trade, while the heavyweight Exelon Corp rose 1.50%. Approximately 700 million shares changed hand on the NYSE, slightly below the average of the last few weeks.
Economic Moves: The U.S. calendar had three important news reports. The first released was the ADP, which showed that the private sector of the economy shed 169K jobs, more than expected. Shortly afterwards, Crude Oil Inventories hit the newswires at 2.1M, something that was interpreted as negative by the commodity market. The last report to hit the newswires was the Beige Book, which showed that the business conditions had improved at a modest pace.
Crude oil was recently trading at $78.40 per barrel, higher by $1.15.
Gold was recently trading higher by $18.00 to $1200.30.
Treasuries saw a flat trading session, mirroring the price action seen in the equity market. The 10-year Treasury notes are currently yielding 3.31%, slightly more than the German Bunds, which are yielding 3.16%.