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Fed Comments Dampen Equity Spirits

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Global Market Wrap:

Fed Comments Dampen Equity Spirits

Equity Futures: Dow +47.00. S&P +2.80. NASDAQ +2.50. Japan Nikkei -13.00. German Dax -30.00

U.S. Trade: U.S. shares finished slightly above the break-even line, after the major U.S. indexes recorded the strongest decline of the prior five months of trading in the previous week.

The market traded in a rather volatile fashion, but without a clear direction in Monday trade, as investor sentiment swung between the better than expected macroeconomic reports and the bearish comments coming from Fed officials. Shortly after the ISM Manufacturing and the Pending Home Sales report, the market advanced as much as 1%, with the S&P futures spiking in the 1050 area.

Soon afterwards, the major U.S. indexes begun retracing, with the financial leading the selling after one of the Fed’s top officials, Jon Greenlee, said that many banks would suffer further losses from the financial real-estate sector, while financial institutions must add additional capital.
 
S&P Technical View: TheLFB Member Charts
Daily chart trend: Long. Main price points: 1080-1100. Looking for: Wave 5 or C top

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 wave count that with a 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 with at least three wave push lower over the coming weeks, since the market is trading around the top of wave 5 or wave C leg.

Sector Moves: The conglomerates sector advanced 0.8%, being the best gainer in the U.S. market. However, utility companies offset most of these gains, as Dynegy and Calpine fell approximately 4%. The financial sector posted some gains during the early trading hours, but went into the close with a minimal 0.1% advance. In the financial sector, the declines were led by Citigroup, which plunged 3.50%.

The best gainer in the S&P 500 index was Ford, which surged 7%, after the company managed to post a $1 billion income in the third quarter. Since the beginning of the year, Ford posted a 225% return.

Economic Moves: The market expected the ISM Manufacturing and the PendingHome Sales reports during the U.S. session, both beating market’s expectations. New Home Sales surged an impressive 6.1% in September, after advancing 6.4% during the prior month. At the same time, ISM Manufacturing PMI advanced to 55.7 in October, the strongest pace in almost three years.

Crude oil was recently trading at $78.00 per barrel, higher by $1.00.

Crude oil Technical View: TheLFB Member Charts
Daily chart trend: Long. Main price points: 68.00, and 82. Looking for: Wave V top

Oil has 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.

Gold was recently trading higher by $17.60 to $1058.00.

Gold Technical View: TheLFB Member Charts
 

Daily chart trend: Long. Main price points: 971.46, and 1070. Looking for: Wave 4)

On the daily gold chart, the market has moved lower over the past week or two, after hitting the 1070 highs, and the wave 3) top. From that area the market came down very slowly, which is probably a correction of wave 4). If this is the case, then this corrective pull-back may be completed soon.

Any break of the 1070 top will put wave 5) in play, while a break of the 971.46 zone invalidates the wave count.

Treasuries found buyers in Monday trade, with the 10-year Treasury yield gaining 40 basis points, up to 3.42%. This happened, after Fed officials said that banks might suffer additional losses over the upcoming quarters.  

Disclosure: No positions