U.S. Trade: The trading momentum was again very light on Wednesday, as the market prepared for, and then reacted to, the FOMC monetary meeting statement. Even once the Fed was out of the way, the cash and futures equity markets failed to move.
S&P futures had a range of 8 points in Wednesday trade, moving on very light momentum. The market behaved in a similar way during the last few days of trading, but interestingly the European and Asian markets saw substantially more momentum during their cash session. This divergence seen in the trading patterns between the overnight and the U.S. markets used to be a regular pattern, but during the last 18 months of Credit Crisis absorption tended happen very rarely, with Wall Street playing the role of leader. That is changing it would seem.
The report calendar was loaded with top tier reports in Wednesday trade, including the FOMC decision. The long macroeconomic list had a limited effect on the market trading patterns. The FOMC report showed that the economy is recovering, while the labor market is showing signs of a turn around, something that should help the U.S. business cycle move ahead, if it can be sustained. The real question is at what cost that will be, with news breaking that the House is looking to pass a bill that increases the budget (deficit) limit to $12.4 Trillion, in an effort to jump-start the labor market, and invest in infrastructure projects.
S&P Technical View: TheLFB Member Charts
Daily chart trend: Long. Main price points: 1115-1130. Looking for: Top of a Long wave 5 or C
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 then 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 target somewhere around the 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, a lower and a large Short blue wave 5 will follow.
Overall, the price structure is signaling for an upcoming turning point (between 1115-1130) on both wave counts with at least a three wave push lower since the market is trading around the top of a black wave 5 or black wave C leg.
Sector Moves: The U.S. and European sectors followed the same pattern for a second day, something that does not happen very often. The financial sector was the strongest gainer in U.S. trade, followed by the basic materials sector. However, the raw materials companies started sidling lower throughout the second part of the cash session, shortly after the FOMC meeting.
Homebuilders were also among the top gainers in U.S .trade, following the Housing Starts numbers. Throughout the session, D.R. Horton and KB Home rose approximately 5%, being the second best gainers in the S&P 500 index. However, NVIDIA was the top gainer in Wednesday trade, surging 8% on the news that the Federal Trade Commission will sue Intel. At the same time, Intel’s closest rival, AMD, surged 4.0%.
Crude oil was recently trading at $70.70 per barrel, higher by $2.05.
Gold was recently trading higher by $11.90 to $1,134.90.
Treasuries declined for the sixth consecutive day as the Fed acknowledged that the economy is recovering. This points to higher interest rates due to the increase aggregate demand, which should lower the price of government debt. The yield on the 10-year notes added 1 basis point, to 3.59%