Fed Comments Damp 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 breakeven line, after the major U.S. indexes recorded their strongest decline of the prior five months 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 from Fed officials. Shortly after the ISM manufacturing and pending home sales reports, the market advanced as much as 1%, with S&P futures spiking in the 1050 area.

Soon afterwards, however, the major U.S. indexes began retracing, with financials leading the selling after Fed official Jon Greenlee, associate director of the central bank's division of banking supervision and regulation, said that many banks would suffer further losses from commercial and residential loans market and that 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-hand 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 on the weekly chart will be rejected, as 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 target somewhere around the 950 area, is expected.

On the right-hand side of the chart, we have a different picture, with a wave count with a zig-zag correction, which is valid for a wave 4 scenario. In this case, lower blue wave 5 will follow.

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At the time of publication, Hague held no positions in the stocks mentioned.

Marco Hague is one of the founders and principals of The London Forex Broadsheet (commonly known as TheLFB), a global forex trader portal with headquarters in the U.S. Hague began his career with the Bank of England dealing with foreign exchange control, and he has been trading for the last three decades. He has been involved with institutional risk asset ratio analysis and the implementation and maintenance of institutional trade desks globally.