Downbeat Sentiment Characterizes Wall Street Trade

Includes: C, DFS, FCX, NEM, SPY, XLF
by: The LFB

Equity Futures: Dow -19.00. S&P -2.00. NASDAQ -3.50. Japan Nikkei -90.00. German Dax -12.00

U.S. Trade: The global markets were surrounded by downbeat sentiment in Thursday trade, but still, the trading volumes remained light. The U.S. indexes lost approximately 1% during the cash session, but most of the trading was concentrated overnight and throughout the first part of the day.

Following the declines seen around the opening bell, S&P futures fell to the 1095.00 area, testing the support trend-line that has held the market since mid July. A break lower would be interpreted as bearish sign, but the market will need stronger momentum to pull this move.

On the fundamental side, the reports issued on Thursday left a mixed picture. The Unemployment Claims report showed that 480K Americans requested unemployment insurance during the second week of December. However, at 10:00 EST, the Philly Fed Manufacturing Index increased unexpectedly to 20.4, even though the market expected a much smaller read.

TheLFB Charting Link

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 declines were led by financial companies, which were a major drag on the equity trade. In the S&P 500 index, the worst two performers were Discovery Financial (NYSE:DFS) and Citigroup (NYSE:C), plunging 8.65% and 7.10% respectively. Discovery Financial tumbled as its Q4 earnings were lower than what analyst had expected. On the other hand, Citigroup fell after it sold 5.4 billion shares, in order to raise the money necessary to re-pay the U.S. bailout. The XLF sector lost 1.70% in Thursday trade.

Raw material companies were also among the top decliners. The sector lost 1.60% as the commodity market slide lower on stronger U.S. dollar. Within this sector, Freeport (NYSE:FCX) lost 3.65%, while Newmont Mining Company (NYSE:NEM) fell 5.00%.

Upcoming Economic Moves:
--:-- EST Jpy Overnight Call Rate Exp 0.10%, Prev 0.10%
--:-- EST Jpy BOJ Press Conference
04:00 EST Eur German Ifo Exp 94.6, Prev 93.9
04:00 EST Eur Current Account Exp -2.3B, Prev -5.4B
04:30 EST Gbp Public Borrowing Exp 23.1B, Prev 11.4B

Crude oil was recently trading at $72.60 per barrel, lower by $0.35.

Gold was recently trading down by $34.30 to $1,1101.90.

Treasuries saw very strong moves in Thursday trade, with the yield on the 10-year notes gaining 11.4 basis points. This was triggered mainly by two aspects, the Fed preparing to exit their quantitative easing strategies, and because traders are taking into account higher inflation rates over the upcoming period.

Disclosure: No positions