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Global Market Wrap:
U.S. Stocks Lose Steam Near The High Of The Year
Equity Futures: Dow +47.00. S&P +6.40. NASDAQ +3.25. German Dax +40.73
For a second consecutive day, the global equity markets saw very strong momentum during the overnight session, but most of it dissolved out during the U.S. trading hours, with the futures market trading within the range developed earlier in the day. The commodity markets headed mostly higher in Tuesday trade, pushed forward initially by boisterous equity markets.
U.S. Trade: S&P futures saw range bound trading for most of the day, within the 1060-1070 channel. The resistance of the channel, the 1070 area represents an important intra-day level, where the market has topped during the last few days of trading. A break above this level would extend the current rally, triggering a wave of buy orders into the market.
The moves made by both the S&P futures and cash market in Tuesday trade was directly reflected in the value of the dollar index. This relationship was outlined during the fist part of the day, when S&P futures surged close to the 1070 area, while the dollar index fell down to the 76.00 support area. Moreover, the range bound trading seen during the cash session was also reflected in the value of the greenback, with the dollar index trading in a 15 basis points range.
S&P Technical View: TheLFB Member Charts:
Daily chart trend: Short possibilities. Main price points: 865, and 1070. Looking for: Wave 5 or C top
The wave count on the weekly chart, above, offers a question; is it wave 4 or not? The price structure on a daily chart is also showing two valid scenarios. On the left side of the chart below, 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, above, 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 wave 2) is expected.
On the right side of the chart, we have a different picture, with a wave count that has a clear zig-zag correction, which is valid for a wave 4 scenario. In this case wave 5 going lower will follow.
Overall, the current price structure signals for a turning point, since the market is trading on the top of wave 5 or wave C leg, around the Fibonacci resistance levels. For a down-trend confirmation the market needs to make a daily close below the 50% Fibonacci retracement level, and also must break through the lower support line.
Sector Moves: Most sectors are traded mixed, just above or below the break-even line. However, the basic materials, oil & gas, and the financial sectors are in the green, posting gains of approximately 1.5%. This is very important for overall market sentiment, since these three sectors have the biggest weighting in the market, and are usually the three sectors that move the indexes around. The health care sector moved down 0.30% in Tuesday trade, only a day after it managed to outperform the entire market.
The basic material and the oil & gas sectors advanced as the equity market moved mainly higher on Tuesday, adding to the gains seen this week. At the same time, investors bought shares of the financial companies after JP Morgan’s (JPM) earnings estimates were raised. Following this decision, JP Morgan was the best performing share in the Dow Jones index, while it was among the top performers in the S&P 500 index. The NYSE tick was strong for most of the day, with slightly more than 2000 companies advancing in intra-day trading.
Economic Moves: The market lacked any top-tier reports for a second consecutive day on Tuesday. However, the market absorbed the Richmond Manufacturing Index numbers, which came in less than expected in September. Wednesday brings the FOMC rate decision and statement.
Crude oil for October delivery was recently trading at $71.55 per barrel, up by $1.85. Crude oil managed to advance for most of the day, and even posted some small gains during the U.S. session, when the dollar index traded in a range bound fashion. Crude’s gains correlated with the selling going on in the foreign exchange market.
Gold for October delivery was recently trading higher by $10.10 to $1015.00. After it bounced on Monday from the 20-day moving average, gold found the strength to move higher in Tuesday trade, on overall dollar weakness. The next target to the upside is in the 1020 area, but a test of this area will come only on positive equity markets/dollar weakness across the board.
Gold Technical View: Weekly chart trend. Long. Main price points: 864, 1005 and 1090. Looking for: Move higher
The price structure on the weekly gold chart is still looking extremely bullish for the next couple of months or maybe even years. The market completed a large complex red wave B correction with a “triple-three” pattern, labeled as wave W, Y and Z.These are separated by wave X and XX at the end of 2008’s price of $681 per ounce. After that, the market made a bullish move near the $1000 per ounce area that we labeled as a blue wave 1, followed by a corrective wave 2.
Wave 2 looks to be complete at the 864 area as the market already broke through the blue wave 1 top at $1005 per ounce. As such, traders may already be targeting the 1090 zone, around the upper Fibonacci resistance level, which should come into play as soon the red wave A top can be taken out.
The current Stochastic read suggests that a temporary top is in, after the bearish divergence and cross in the over-bought area. As such, some pull-back to test support below the 1000 area looks to be the case.
Treasuries moved very little in Tuesday trade, ahead of $43 billion sale in two year Treasuries. For now, the U.S. Government is running a huge deficit, which is putting upside pressure on Treasury yields.