European Trade: European cash and U.S. futures markets are extending the sell-off started during the past week of trading. The reason behind this sell-off is rather strange; the better than expected NFP data seen on Friday, which has lifted expectations for a move on interest rates from the Federal Reserve, thus helping the U.S. dollar strengthen.
The strength of the U.S. dollar had an important influence in the commodity markets, where raw materials plunged at an impressive speed in Friday and Monday trading. Since Friday’s open, gold has lost almost 6%, while crude oil has shed $3, or approximately 4% since the high touched in Friday's trade. The vast majority of declines in Monday's European trade came from the energy and raw materials companies.
However, this sell-off has only a temporary nature, since the positive news coming from the labor market shows that the economy is expanding. An expanding economy, coupled with the current low level of interest rates that even with a rate increase are at historic lows, might provide a substantial boost to the balance sheets of most companies. At the same time, an expanding economy increases the demand for commodities, thus putting upside pressure on prices.
In European trade, the DJ STOXX 50, which tracks the performance of the most liquid 50 European companies lost 0.95%. Since the session started, the U.K. FTSE and the German Dax shed 0.85%, but Sweden’s OMX 30 index lost only 0.05%, while it actually managed to turn into the green for a short period. Monday’s sell-off was more pronounced in emerging European trade, with the Czech Republic losing 1.45%, while Romania’s BVB dropped 2.50%.
S&P Technical View: TheLFB Member Charts
4 Hour Chart Flows: Long Price Points: 1066, and 1118 Looking for: Ending diagonal move short
Momentum: S&P futures moved into long mode on Nov 13th and have held that trend, which has allowed the tests of the 4 hour chart support to be bought. There is a tight sideways channel forming and that is allowing the move from overbought to oversold and back again, to be completed over a 4-5 day period.
Elliott Wave: In the last trading session another move into recent highs, near to 1118, was made. This could be a final wave c leg of a Long wave 5). If this is the case then an ending diagonal is done technically, and a move lower towards the support line at 1090 should follow if the fundamental equity outlook remains questionable.
The confirmation of an expected bear market will appear once the 1066 support of wave 4) is taken out and held.
The current S&P wave count with a diagonal formation signals for a stronger dollar over the coming days and weeks.
Sector Moves: Raw materials and energy companies subtracted the most points in European trade, declining 1.40% and 1.75% respectively. To make matters worse, the banking sector lost approximately 1%. Raw materials and banking companies have the bigger weight in the European markets, and most of the time the direction of trading of these two sectors dictates the general direction of the market.
Eurasia, Randgold, Fresnillo, Petrofac and Lonmin were the biggest decliners in the FTSE 100 index, dropping between 1.50% and 3.50%. The U.K. banking sector also dropped, with Lloyds, RBS and Barclays moving down hand in hand. Since the day started, the three banks erased values by approximately 1.80%. In the Swiss stock market, the only two sectors that managed to advance were consumer services and technology.
Economic Moves: The macroeconomic calendar was light in European trade, but ahead investors prepare for Mr. Trichet [ECB] and Mr. Bernanke’s (Fed) speeches, scheduled at 08:00 EST and respectively at 12:00 EST.
Crude oil was recently trading at $74.75 per barrel, lower by $0.85
Gold was recently trading lower by $24.50 to $1144.90.
Author's Disclosure: No positions