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Global Market Wrap:

Equities Trade Flat, Again

Equity Futures: Dow -26.00. S&P -2.70. NASDAQ -6.50. Japan Nikkei +15.00. German Dax -11.00

U.S. Trade: For a third consecutive day, the U.S. cash session was characterized by a very slow trading sessions. Since the session started, S&P futures moved only 8 points, having one of the least active sessions of the last few weeks.

This happened as the U.S. market trades near its yearly highs, something that is usually seen as bearish. The one savior here is that recent bouts of selling have been quickly reversed. The market’s inability to set new highs, together with the declining trading volumes might indicate equities are currently running into a re-distribution phase, which could foresee more tests of support in the short to medium term.

The longer the markets hold these constant tests of support, and the longer the sellers have to wait to make a break-through, the more volume will eventually be required to make the break. Now may be the time to start to set straddles on the long and short side of the traded market, because the break-out will likely be dramatic.

Things look more optimistic on the fundamental side for the U.S. equity market, since the U.S. economy is showing sings that the economy is recovering at a rather unexpected pace. Looking ahead, this might act as an important filter, which could reduce the probability of a change in trend. Now, that is a technical and fundamental conundrum.

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 financial sector was responsible for the vast majority of selling seen in Tuesday trade. The financials dropped 1.3%, while the other eight sectors represented in the U.S. market fell between 0.1% and 0.4%. Interestingly, a similar pattern was observed during the European cash sessions.

The sell-off within the financial sector started after UBS was downgraded to “sell”, and after a number of regional banks, including First Horizon, Zions Bancorp, City National and Marshall & Ilsley, which fell between 4.5% and 6.4%. Citigroup was also a major drag on the index, plunging for a second day as the bank prepares to sell assets in order to repay the Treasury bailout. In intra-day trade, Citigroup lost 4.30%, while JP Morgan and Bank of America lost 2.50%. Among the major banks, Wells Fargo was the only that managed to stay in the green, but even so, by the middle of the session, WFC started sliding lower.

Economic Moves:
19:30 EST AUD GDP Exp 0.4% Prev 0.6%
03:30 EST Eur German Manufac PMI Exp 52.6, Prev 52.4
03:30 EST Eur German Services PMI Exp 52.0, Prev 51.4
04:00 EST Eur Manufacturing PMI Exp 51.5, Prev 51,2
04:00 EST Eur Services PMI Exp 53.3, Prev 53.0
04:30 EST Gbp Claimant Change Exp 14.2K, Prev 12,9K
04:30 EST Gbp Unemployment Rate Exp 8.0% Prev 7.8%
05:00 EST Eur CPI Exp 0.6%, Prev 0.6%
05:00 EST Eur Core CPI Exp 1.2%, Prev 1.2%
08:30 EST Usd Building Permits Exp 0.58M, Prev 0.55M
08:30 EST Usd CPI Exp 0.4%, Prev 0.3%
08:30 EST Usd Core CPI Exp 0.2%, Prev 0.2%
10:30 EST Usd Crude Oil Inventories Prev -3.8M
14:15 EST Usd FOMC Statement
14:15 EST Usd Fed Funds Rate Exp 0.25%, Prev 0.25%

Crude oil was recently trading at $70.70 per barrel, higher by $1.20.

Gold was recently trading higher by $0.20 to $1,124.00.

Treasuries continued their uptrend on signs that the economy has turned around. The yield on the 10-year Treasury notes rose 4 basis points, up to 3.59%. This is the highest level that the Treasury market reaches in 4 months.

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