Global Market Wrap: Elevator Up On U.S. GDP- Bonds Drop

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Global Market Wrap:

Elevator Up On U.S. GDP- Bonds Drop

Equity Futures: Dow +190.00. S&P +22.40. NASDAQ +28.00. Japan Nikkei +130.00. German Dax +5.00

U.S. Trade: U.S. equity markets surged approximately 2%, after a report showed that the U.S. economy expanded 3.5% in the third quarter, more than was expected, and as an Advanced read it was much higher than the last Preliminary post of -0.7%.

The gains were lead by the financial and by the basic materials sectors, the same two that were the biggest drag in the market over the last four days of trading. Moreover, in intra-day trading, the S&P 500 and the NASDAQ outperformed the Dow Jones index, after two days in which the Dow Jones index traded at a considerable premium from the broader-S&P 500 and from the tech-driven NASDAQ index.

The futures market showed positive momentum even from the start of the day, when the S&P futures bounced off a trend-line that has been holding the market since Aug 09. However, the real uptrend started only after 08:30 EDT, when the U.S. GDP came in at 3.5% compared to the expected 3.2%. The GDP report points out that the economy is in a recovery mode, led by consumers and inventories, something that is very positive for the equity markets.

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, above, 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 has 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 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, with the shape of an expanding diagonal pattern.

Sector Moves: Each of the nine sectors represented in the U.S. market advanced on Thursday, with the smallest gains coming from the healthcare sector, which advanced 1%. On the other side, the gains were led by financials which surged an impressive 4.3%, and basic materials that advanced 3.7%. In the financial index, the heavyweights JP Morgan, Bank of America and Wells Fargo advanced between 3.5% and 4.5%.

In the S&P 500 index, only 40 companies declined, from which the worst was First Solar, which plunged 16.74%, after it missed its third quarter earnings estimates. The company has one of the biggest short interest’s as a percentage of floating shares among the members of the S&P 500 index, slightly above 20%. 

The trading volume was higher than the average of the last few days of trading, with 1,400 Million shares changing hands in the NYSE, from which the vast majority was built on advancing shares. The NYSE TICK stayed in the green most of time, with approximately 2500 companies advancing.

Economic Moves: The most important report of the day was the U.S. GDP, which managed to beat expectations helped by a strong contribution from consumer spending and from inventories. Moreover, the third quarter GDP was the first positive read over the last four quarters, which indicates that the U.S. economy is heading towards overall expansion once again. Ahead, the Asian session is loaded with reports coming from Japan, but other than the BoJ interest rate decision, the others reports are likely to pass unnoticed into the financial market.

Crude oil was recently trading at $80.00 per barrel, higher by $2.50.

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

Oil has made the recent top around 82.00 zone, and close to Fibonacci resistance levels shown between 83 and 84. Volume is not as strong over the last ten days, while the MACD is showing bearish divergence. All these reads are characteristics of wave V, 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 $16.10 to $1046.60.

Gold Technical View: TheLFB Member Charts
Daily chart trend: Long. Main price points: 1070. Looking for: Wave 3) top

On the gold daily chart, the market reached a new top around $1070 per ounce, where an extended red wave 3) may be completed. The market is currently trading around a significant Fibonacci extension resistance area, where a move lower into the corrective wave 4) may follow over the coming days and weeks, towards the lower support line of a trading channel.

Treasuries moved lower after the better than expected GDP read, which shows that the economy is on the right path. This makes some market participants think that the Fed will begin raising interest rates over the next few quarters, which makes Treasuries look as overvalued