China Demand Boosts Equities

by: The LFB

Equity Futures: Dow +54.00. S&P +8.80. NASDAQ +10.00. Japanese Nikkei -30.00. German Dax +9.00.

European Trade: European markets rose strongly around the opening bell, moving in-line with the U.S. futures market. Earlier in the day the Asian equity indexes were also surrounded by positive momentum, with the Nikkei index and Asian markets closing the trading session up by as much as 2.5%.

Shares in Europe advanced approximately 1%, with very strong gains coming from the basic materials sector. Throughout the session, the U.K. FTSE added 1.20%, being among the top gainers in European trade, while the German Dax advanced 1%. The gains in the equity markets, and especially among the commodity companies, were triggered by positive macroeconomic data coming from China. Even though the Chinese economy is responsible only for a small fraction of the global consumption itself, the economy has strong needs for raw materials, such as crude oil and copper. Much of the rally started in March in the commodity markets can be attributed to the demand coming from China.

S&P futures are currently trading just below the 1110.00 swing area. A break above this price point will probably send the market into a bull run, something that will be reflected in both the currency and commodity markets. The trading volumes had been subdued lately, and that can lead to some volatile trading sessions, and strange intra-day breaks.

TheLFB Charting Link

S&P Technical View: TheLFB Member Charts

Overall View: Looking for an ending diagonal (reversal) pattern

4 Hour Chart Flows: Mixed Price Points: 1066, 1084, and 1118 Looking for: An ending diagonal (reversal pattern)

Momentum: S&P futures moved into long mode on Nov 13th and have held that trend, which has allowed the tests of the 4 hour chart support to be bought. There is a tight sideways channel forming and that is allowing the move from overbought to oversold and back again, to be completed over a 4-5 day period.

Elliott Wave: S&P futures hit the lows of the week on Wednesday at 1084 where a bullish bounce appeared, after the market was unable to break through the support line of an ending diagonal pattern. After that bounce prices traded back towards the 1110 level, where any Long break may hit its highs. If 1118 is the final top of our ending diagonal, then prices should fall towards the 1090 area over the coming trading days.

A break of 1066 support will confirm a bear market, while a move through the 1118 top will signal a more complex wave 5) formation of an ending diagonal (and the wave count will be re-worked).

The Stochastic read is overbought.

Sector Moves: The basic materials companies were among the most active in Friday morning trade. The sector, as a whole, advanced 2.35%, much stronger than any other sector represented in the European market. Strong gains also came from the insurance sector, which advanced 1.50%.

In the U.K. FTSE 100, only one company declined, Admiral Group, which lost 0.30%. The pack of gainers was led by the miners Xstrata and by Kazakhmys, trading up approximately 3.80%, followed by the luxury producer Burberry Group. As a note, most luxury makers posted relatively strong gains throughout Europe. In the German Dax, the best performing company was BASF, up 2.10%, which also operates within the basic materials sector.

The Dutch financial company ING surged 5.50%, being among the top gainers in European trade for a second consecutive day. On Thursday, the company jumped following a “buy” recommendation, while today, ING surged after it announced that it will re-pay the government 5.6 billion euros. ING was the second most heavily traded company in Europe, after Lloyds.

Economic Moves: During the European session, the U.K. PPI report (the rate of inflation at the factory gate) showed that input prices advanced only 0.1% in November, that follows a 2.9% surge in October. In November, the year-over-year prices stood 2.9% higher, the strongest inflation rate in almost nine months. During the first part of the U.S. session, investors prepare for Retails Sales and for the Consumer Sentiment reports.

Crude oil was recently trading at $70.88 per barrel, higher by $0.35

Gold was recently trading higher by $12.80 to $1139.00.

Disclosure: No positions