Global Market Wrap: Confidence Numbers Extend Decline- Equities Follow

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Global Market Wrap:

Confidence Numbers Extend Decline- Equities Follow

Equity Futures: Dow -6.00. S&P -6.40. NASDAQ -29.50. Japan Nikkei -70.00. German Dax -15.00

U.S. Trade: Following the weaker than expected U.S. consumer sentiment report, the vast majority of U.S. stocks decline in Tuesday trade. The S&P 500 and the NASDAQ indexes are trading in the red, but the Dow Jones index is currently posting some small gains. The tech-heavy NASDAQ index dropped more than 1%, dragged lower by the declines seen in the semiconductors sentiment. 

The futures indexes traded most of the day on weak momentum, and even after the start of the U.S. session, the equity futures moved just over 1%. During the overnight session, the S&P futures had a range of only 6 points, much smaller than the average of the last few weeks of trading. The market continued to trade in a range bound fashion after the opening bell on trading volumes that were relatively strong. 

S&P futures are trading just above the 1060 resistance area and at the same time above a support trend-line that has been holding the market since mid-July. A break below it would send a very negative technical sentiment into the market, especially now that investor’s sentiment looks rather fragile. 

S&P Technical View: TheLFB Member Charts
Daily chart trend: Long. Main price points: 1080-1100. 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 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 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 wave count that has 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 with at least three wave push lower over the coming weeks, since the market is trading around the top of wave 5 or wave C leg, with the shape of an expanding diagonal pattern.

Sector Moves: Most sectors declined in Tuesday trade, but the healthcare companies managed to advance almost 1%, aided by Coventry Health Care and UnitedHealth Group. The two healthcare companies were among the best gainers in the U.S. market in Tuesday trade. At the same time, industrial goods, financials and services plunged 1%, while the technology stocks lost 0.9% in intra-day trading. 

The best gainer in the S&P 500 index was Cabot Oil & Gas Corp, which advanced as much as 10%. Most of these gains came after JP Morgan upgraded the company to “overweight” from “neutral”. 

Economic Moves: The Consumer Sentiment report played an important role in the market’s valuation in Tuesday trade. The report showed that consumer sentiment dropped for a second consecutive month in October, on the back of rising unemployment. This is usually seen as a negative indicator, since unhappy consumers tend to spend less. 

A different report showed that U.S. house price rose for the fourth consecutive month in August. The Case-Shiller report showed that house prices advanced in 17 out of 20 cities, gaining 1.2% from the prior month of July. Still, some market analysts claim that this might not be the bottom in the housing market.  

Crude oil was recently trading at $79.40 per barrel, higher by $0.80. 

Crude oil Technical View: TheLFB Member Charts
Daily chart trend: Long. Main price points: 68.00, and 82. Looking for: Wave V

Oil has made the recent top around 82.00 zone, and close to Fibonacci resistance levels shown between 83 and 84. Volume is not as strong over the last ten days, while the MACD is showing bearish divergence. All these reads are characteristics of wave V, which is the final sub-wave of a black wave 1), and is indicative of a reversal set-up, in this case, short.

Gold bullion was recently trading down by $3.50 to $1039.30.

Gold Technical View: TheLFB Member Charts
Daily chart trend: Long. Main price points: 1070. Looking for: Wave 3) top

On a daily gold chart, the market reached a new top recently around $1070 per ounce, where an extended red wave 3) may be completed. The market is currently trading around a significant Fibonacci extension resistance area, where a move lower into the corrective wave 4) may follow over the coming days and weeks, towards the lower support line of a trading channel.

Treasuries found buyers in Tuesday trade as the market saw strong demand for a two-year notes auction, worth a record $44 billion. To some extent, this shows that some investors still prefer the safety of the debt market, despite the strong rally seen in equities.