Global Market Wrap: Financials Drag The Market Down

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Global Market Wrap:

Financials Drag The Market Down

Equity Futures: Dow -21.00. S&P -1.40. NASDAQ +1.00. Japan Nikkei +65.00. German Dax -5.00

U.S. Trade: U.S. markets were trading above the breakeven line during the first part of the day, posting small gains, but in the middle of the cash session the major U.S. indexes slipped lower, trading into the red territory.

The market fell under the influence of financial stocks, after a report showed that commercial delinquencies hit an all time record high during the third quarter. After mortgage-backed loans, it is said that commercial mortgage-backed securities are the next to force banks to continue to add to their long streak of write-downs.

Trading in the S&P futures index was subdued for most of the day on Monday, having a range of only 11 points. During the U.S. trading hours Mr. Bernanke said in a speech that the U.S. economy would face increased pressures going forward, coming from a very weak labor market and tight credit conditions. To some extent Mr. Bernanke points out that the problems in the labor market are still far from being over, despite Friday’s positive NFP read. This was reflected in the Treasury market, where investors bought the debt paper in anticipation that the key interest rate will rise at a very slow pace.

S&P Technical View: TheLFB Member Charts  
Daily chart trend: Long. Main price points: 1100-1120. 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, 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 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 around the current levels with at least three wave push lower, since the market is trading around the top of wave 5 or wave C leg.

Sector Moves: Financial companies were the worst performer of the day, dropping 1.0%, considerable more than the other sectors. The sell-off was triggered by a report, which showed that commercial-mortgage delinquencies hit an all-time high in Q3 2009. Even though chances for this even to become a systematic risk factor are rather small, investors think that this will effect the quarterly performances of most banks. Within this sector Bank of America, Wells Fargo and Morgan Stanley lost approximately 2.00%.

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In the S&P 500 index, the gains were led by Nvidia, which gained 12.50%, Sprint, which advanced 11.10% and by AMD, which added 8.00% in Monday trade. The gains in Nvidia and AMD were triggered by Intel’s decision to delay its entry in the computer graphic cards market.

Economic Moves: Clear

Crude oil was recently trading at $76.25 per barrel, lower by $0.30.

Gold was recently trading higher by $6.50 to $1220.50.

Treasuries advanced after Mr. Bernanke provided a downbeat speech about the outlook of the economy. The yield on the 10-year Treasury notes fell 4.5 basis points, down to 3.43