Global Market Wrap: European Market Profit Takers

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Global Market Wrap:

European Market Profit Takers

Equity Futures: Dow -11.00. S&P -1.50. NASDAQ -1.00. Japanese Nikkei -11.00. German Dax -3.00.

European Trade: After a very strong start on Monday, the major European indexes opened below the break-even line as investors used the current equity valuations as a reason to book profits. Earlier in the day, most Asian shares closed the cash session in negative territory, despite a positive start.

With the selling seen around the opening bell, the European markets fell for the first time in four days. Across Europe, the German Dax was trading down 0.30%, while the France’s Cac 40 lost 0.40%. The DJ STOXX 50 index, which gauged the evolution of the 50 biggest European companies, lost 0.20% in Tuesday morning trade. The emerging European markets also traded lower, while the only region that managed to stay near the break-even line was Benelux, formed by Belgium, Netherlands and Luxembourg. 

S&P Technical View: TheLFB Member Charts
4 Hour chart trend: Long. Main price points: 1082, and 1115-1120. Looking for: Wave C top

 S&P futures found a top around the 1112 area; just 3 points below around 1115 target, where the long wave V) may already be complete. We can clearly count five black waves up from the red wave a B low, which suggests that wave C is trading around the top of its potential.

After every five wave move, a three wave correction is expected, so move  lower on the S&P, near to the 1082 support zone should not be a surprise technically. If this follows through, traders may see some dollar buying in the near-term, which will pull the euro away from the major $1.50 level, while the 75.00 dollar index support holds. These markets are all inter-connected at the moment, with a 90%+ correlation.

Bearish confirmation on S&P futures hits if there is a short  breakout of 1082.

Sector Moves: Most sectors traded flat in Tuesday trade, but companies from the banking and from the basic resources sectors had a substantial downside contribution. To the upside, the ultra-defensive utility sector added 0.20%, while travel & leisure, and media companies added 0.90%, being the best gainers in European trade.

The gains in the travel & leisure sector were led by Accor, which said that it is considering whether to split its business model into two units; hotels and travel cards. In the Cac 40 index, Accor is trading up 5.5%, being by a large margin the best gainer in the index. Media companies surged after the U.K. operator Cable & Wireless announced it plans to raise 200 million pounds from the bond market. Following this statement, Cable & Wireless jumped 3%, British Sky 1%, while the heavyweight Vivendi gained 0.80%.

With broad weakness seen in the market, the defensive healthcare sector also declined, with the Merck downgrade to “underweight” helping to send the entire industry lower. In the German Dax, Merck lost 2.00%, while Novartis, Roche and Synthes lost between 0.5% and 0.8%.

Economic Moves: During the European session, a report showed that the U.K. CPI for the month of October increased to 1.5%, up from 1.1% just one month previously. Currently, the U.K. inflation rate is strongly above those recorded in the Euro area and U.S., but still the Bank of England says that deflation, not inflation,  is the bigger threat. Ahead, investors will prepare for the U.S. PPI and TIC numbers.

Crude oil was recently trading at $78.45 per barrel, lower by $0.45.

Crude oil Technical View: TheLFB Member Charts
4 Hour chart trend: Mixed. Main price points: 71.92, 75.50, and 82. Looking for: 75.50 to hold

Oil prices have reached our minimum long objective around the 79.00 area, discussed yesterday. The wave count now remains bullish so long as the market trades above the 75.50 area, where recent lows were made.

Traders with a bullish bias however, must be very careful around the current levels, as the market did not break through the upper black resistance line of a bearish channel. Any long break-out here will put a wave V) in play and that targets the 84.50 area.

Gold was recently trading lower by $6.90 to $1132.30.

Gold Technical View: TheLFB Member Charts
4 Hour chart trend: Long. Main price points: 1083, and 1130. Looking for: Wave 5) top

Gold has reached new highs recently, which means that the bullish outlook in our blue wave V may not be complete. Traders should wait on a short break of the 1100 support zone, of a re-worked wave IV, before they can confirm a bearish reversal. Until that happens, a move up into the much higher levels (1150) may still be the case, especially if U.S. dollar breaks through the 74.70 support zone.