U.S. Trade: Equity investors took a day off in Tuesday trade, with the major indexes trading flat throughout day. However, this was not the case in the other markets, especially in Treasuries, and to some extent, in currencies and commodities.
Since the day started, the S&P futures had a range of only 6 points, one of the lowest of the last few weeks of trading. This happened as the Holiday Season and the year-end are approaching, which forces institutional investors to balance their trading books. Over the last week of trading this was certainly reflected in the equity market, which barely moved from one day to the other.
However, the recent signs that the economy is recovering faster than expected had a strong influence in the Treasury market, which advanced at a strong pace for a second consecutive day. In Tuesday trade, the yield on the 10-year note added 6 basis points, up to 3.74%, the highest level in four months, while the spread between the short and the long term bonds continued to widen. In other words, investors think that inflation will remain near to the ground for now, but as the economy recovers, it will begin to rise strongly.
Despite the weak momentum seen in the three major U.S. indexes, the macroeconomic calendar had two important news reports, the U.S. GDP and the Existing Home Sales. The U.S. GDP was released lower than expected, but this had little influence on the market. On the other hand, Existing Home Sales surged to the highest level in almost three years, sparking the rally in the Treasury market.
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. The left side of the chart 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: There was a general lack of activity among the major U.S. companies. Within broader sectors, utilities declined 0.50%, but the other major sectors added between 0.20% and 0.60% without exceptions.
Housing manufactures were in demand in Tuesday trade after the Existing Home Sales report showed that demand is starting to be present once again in the market. As such, companies within this industry added on average 5.7%, being the leaders in the U.S. market. Pulte Homes (NYSE:PHM) added 5.5%, while Cavco (NASDAQ:CVCO) Industries rose 9.7%.
The major airline companies also saw strong gains, after UBS recommended the industry. The strongest two gainers within the major airlines were Delta Air Lines (NYSE:DAL) and UAL (UAUA), gaining approximately 12%.
Upcoming Economic Moves: Clear
Crude oil was recently trading at $74.10 per barrel, higher by $0.35.
Gold was recently trading down by $11.60 to $1,084.30.
Disclosure: No positions