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Global Market Wrap:
Up And Down The Break-even Line
Equity Futures: Dow +5.00. S&P -1.40. NASDAQ +4.50. Japan Nikkei +30.00. German Dax +7.00
U.S. Trade: U.S. market traded flat for most of the time in Tuesday trade, after the Dow Jones index hit a 13-month high in the session before.
S&P futures saw thin trading volume, having a range of only 9 points, less than 1%. The three major U.S. indexes, the S&P 500, the Dow Jones and the NASDAQ started the day trading in the red, advanced above the break-even line, but then fell again posting negative numbers at the close. This resilience to move comes just one day after the U.S. market advanced 2%, aided by the G20’s decision to retain both the quantitative easing programs and a generally low level of interest rates.
The lack of movement seen in the S&P futures trade was reflected in the currency and in the commodity markets, where the dollar index posted minimal gains, while crude oil and gold are currently traded close to the break-even line, despite a volatile intra-day trading session.
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 around 1100-1110 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: The defensive healthcare and utility sectors found buyers in Tuesday trade, being the only two sectors of note that advanced. Strong declines came from industrial goods, which lost nearly 1%.
The best gainer in the S&P index were the online travel agency Priceline.com, which jumped 19% on better Q4 earnings forecasts, and AIG, which surged 5.50% after Moody’s said that the insurer will be able to pay its debt to the Fed, and some of its debt to the Treasury. The U.S. government had to inject $180 billion to rescue AIG.
In the NYSE, 725 million shares changed hand, below the average of the last few weeks of trading, with approximately 400 million on declining shares. A similar pattern was observed in the Nasdaq and Amex markets.
Economic Moves: Clear
Crude oil was recently trading at $78.90 per barrel, lower by $0.50.
Oil prices have been trapped between the 81.95 highs, and 76.47 support, for the last two weeks, which suggests that the wave IV) structure is a little more complex than first thought. As such, the market may be forming a triangle formation, where the 76.47 support area must hold.
Currently, wave d leg of a triangle structure is probably in process with wave e yet to come, where the prices must not fall below the 76.47 support zone.
A break of the 81.95 highs will put a wave V) target around 84 dollars in play.
Gold was recently trading higher by $2.80 to $1104.20.
On the daily gold chart, the market has broken through the 1070 wave 3) top, after hitting the 1026 wave 4) bottom around the bullish trend line. This break has put wave 5) in progress, which has already reached the first target at the 1090 area as discussed the past weeks.
Once wave 5) of an extended black wave III finds the top, traders should look for a pull-back into the black, corrective wave IV.
Treasuries moved very little in Tuesday trade, following the price action in the U.S. equity market. Also on Tuesday, the U.S. Treasury sold $25 billion in 10-year Treasury notes.
Disclosure: No positions