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Global Market Wrap:
Housing Data And Software Drag The Market Lower
Equity Futures: Dow -31.00. S&P -2.70. NASDAQ -14.75. Japan Nikkei -23.00. German Dax -4.00
U.S. Trade: U.S. shares declined in Wednesday trade after disappointing data from the technology and housing markets hit the newswires. Earlier in the day, the European cash and U.S. equity markets were trading in the green, but as the market headed towards the U.S. open, shares started sliding into the negative.
By the start of the U.S. cash market, the three major U.S. indexes were trading in the red, after the Building Permits report was released , and printed lower than expected. The tech-driven NASDAQ index underperformed the Dow Jones and the S&P 500 indexes most of the day, as the software sector was hit by the negative news reports coming from Salesforce.com and Autodesk. Since the beginning of the fourth quarter, in October, the Nasdaq index had the tendency post lower returns than the Dow Jones or the S&P 500 index. Going into the close the markets were still trading on weak momentum.
The price structure on the daily chart is 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, 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 targets somewhere around 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 lower blue wave 5 will follow.
Overall, the current price structure signals for a coming turning point around 1120 area with at least three wave push lower, since the market is trading around the top of wave 5 or wave C leg.
Sector Moves: Each of the nine sectors represented in the U.S. market fell in Wednesday trade. The biggest declines came from conglomerates and consumer goods, on the back of the declines posted by United Technologies and 3M, and from Avon Products and Estee Lauder.
The technology sector was led lower by downbeat earnings forecast coming from Autodesk and from Salesforce.com. Autodesk tumbled 10%, while Salesforce.com fell 3.5%. Despite the negative momentum seen in the technology sector, Spring Nextel surged 3.5%, while AMD jumped almost 10%, to become the best performing company in the S&P 500 index.
Economic Moves: During the U.S. session, a report showed that Building Permits in the U.S. fell to 550K for the month of October, even though the market expected a much higher read. The current read is the slowest since April 09, and points to a very slow recovery in the housing market. At the same time, a different report showed that the CPI read increased by 0.3% in October, mainly dragged higher by the energy component, and is still painting a mixed picture in regard to the threat of infaltion.
Crude oil was recently trading at $79.55 per barrel, higher by $0.40.
Oil made the latest top around the 82.00 zone, very close to the Fibonacci resistance levels shown between 83 and 84. Volume has not been strong over the last ten days, and the MACD is showing bearish divergence. All these reads are characteristics of a wave V move, which is the final sub-wave of a black wave 1), and is indicative of a reversal set-up, in this case, short once the 83 – 84 area is reached.
Gold was recently trading higher by $0.40 to $1143.40.
On the daily gold chart, the market is still searching for a wave III top before an expected bounce lower, into a corrective wave IV.
Currently the market is testing the 161.8% Fibonacci extension level of the wave I distance, which is a typical Fibonacci level for a wave III target. Therefore, a turning point around the current levels should not be a surprise.
Treasuries found buyers for a fifth consecutive day on Wednesday, after Fed officials intimated that interest rates might remain low for extended periods, suggesting up to 2012. Following these comments, the yield on the 10-year Treasury notes gained 4.6 basis points.
Disclosure: No positions