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Global Market Wrap:
Equity Sell-Off Extended During The U.S. Session
Equity Futures: Dow -92.00. S&P -16.10. NASDAQ -25.75. Japan Nikkei -10.00. German Dax -100.00
The equity sell-off continued in Thursday trade, with the major global indexes trading in the red. The overnight session was relatively flat, but the selling re-started after the U.S. open, and after the 08:30 EDT reports. The current downtrend started in Wednesday trade, after the FOMC statement showed that the central bank is looking to halt the liquidity programs.
U.S. Trade: The global equity markets had been in a strong uptrend, gaining as much as 60% over the last six months of trading. This rally started with the central bank’s programs to provide liquidity into the financial market. However, some central banks, including the Fed, announced that these programs are coming to and end as the outlook of the global economy improves. This, in turn, agitated some market participants, fearing that this could send the global economy back into a slump, forming a W-shape recession.
S&P futures started to decline only after the U.S. news reports hit the wires. The two reports, unemployment claims and existing home sales came in weaker than expected, but not enough to justify the current sell-off when compared to previous economic reactions. Since the day started, the S&P futures lost approximately 12 points, or a little more than 1%, and are now trading just below the 38.2% retracement of the rally started in September. The next target to the downside is in the 1035 area, where the market spent the entire last week of August trying to move higher.
S&P Technical View: TheLFB Member Charts: S&P Futures Example
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: Every sector represented in the U.S. market turned red in Thursday trade, while only six industries managed to post gains, from which only Toy & Hobby stores and Auto Parts stores advanced more than 1%. Interestingly, the two are the worst performing sectors over the last six months of trading, with the Toy & Hobby Stores index dropping an impressive 21.5%, in a period in which the S&P surged 60%.
For now, the trading volume had been thinner than compared to the last few days of trading, with only 906 million shares changing hands on the NYSE. Moreover, the average volume over the last two years of trading was 1.5 billion shares, much more than at present.
Economic Moves: There were two red flag reports during the U.S. session, the unemployment claims for the week to September 19, and the existing home sales for the month of August. Unemployment claims fell for a third consecutive week, but the prior number was revised higher. Existing home sales failed to reach expectations, even though the report constantly beat forecasts over the last six months.
Crude oil for October delivery was recently trading at $65.95 per barrel, down by $3.00. Crude oil declined at a strong pace for a second consecutive day in Thursday trade, and it managed to break below a 4-month old support trend-line, something that usually denotes a bearish outlook.
Gold for October delivery was recently trading lower by $17.80 to $996.60. Gold had one of the most volatile days of the last few weeks of trading, moving as much as $28 in intra-day trading. However, the strength the dollar posted during the second half of the day sent the precious metal lower, below the $1000 benchmark level.
Gold Technical View: TheLFB Member Charts: Gold Oil Example
Daily chart trend: Long. Main price points: 971.46, 1023, and 1040. Looking for: Wave 3) top
Gold has taken out some very important resistance levels at $989 and $1000 per ounce over the past few weeks, which was the key for a move towards 1023, where wave 3) may already be completed. If this is the case then traders should watch for a corrective pull-back in a red wave 4), which may fall down to the 38.2% Fibonacci support zone of the wave 3) distance, before we will look on the bullish side again. Any near-term break of the 1023 highs will signal that wave 3) is not finished yet, therefore a move up into 1040 resistance area in this case, will likely happen.
Overall, the gold is overbought, so traders must be very carefully with the long position around the current levels.
Treasuries and the dollar were the only two assets that advanced during the day. Treasuries advanced as investors turned to the relative safety of the debt market, following the sell-off seen in the global equity markets.