U.S. Business Cycle Stuck in Trough

NEW YORK ( TheStreet) -- Headlines and Open Positions

ISM and ADP were the driving forces of Wall Street trade on Wednesday, and allowed the overnight-market alert warnings of over-extended equity markets, and subsequent trade signals, to come to fruition.

The US economic calendar has dominated the news wires in regard to equity indices valuations, with a stream of data hitting the wires recently that confirm the U.S. business cycle is still unable to move out of the trough phase and into expansion.

There are a multitude of individual stock trades setting up as a result of the Wednesday session moves, which will be sent to clients if confirmation is seen this week. The fundamentals of the following companies may not be questionable, but they will get caught in the downdraft if global indices trade confirms that June will be a month that starts with profit taking on equity futures contracts.

Intel ( INTC) will signal short with a close below 22.00, as will Continental Resources ( COL) with a close below 59.70.

Apple ( AAPL) will signal short with a close below 347.00 that targets 344, and possibly 338 if the global equity indices downdraft hits. Google will signal short with a close below 527 that targets 522, and 515.

The potential for new equity indices trade signals to form today has already passed, with overnight global momentum and reactions to this morning's economic docket now priced in. Traders who missed the overnight flow of information and trade ideas from TheLFB trade desk should not jump in at this stage; the momentum has run its near-term course and patience needs to be practiced.

Equity and economic fundamentals remain very questionable over the mid-term, especially as the first-quarter earnings season wraps up and questions are asked whether the Federal Reserve will instigate another round of quantitative easing programs.

The trade signal on the S&P 500(1327) followed through with a short signal from 1340, that targeted 1338, 1335, and 1329 has already filled. The next target area is 1313 if momentum builds. However, traders will need to exercise caution in joining the fray at this stage.

A S&P 500 close below 1325 on Wednesday draws in a potential test of 1315. A weekly close below 1315 draws in a monthly chart test of 1275 potentially. The fly in the ointment, and the unknown variable in all of this, is how far the Federal Reserve Bank of New York will go in ramping low-volume exchange valuations in an effort to prove that quantitative easing is working (cough, cough).

The signal to sell SPDR S&P 500 ( SPY) (133.50), the exchange traded fund (ETF) that tracks S&P500 momentum, followed through with a break of 134.20 that targeted 134.00, and 133.20, and has now completed its course. Traders who missed the signals need to take care at these levels, and wait for the overnight Asian and European sessions to reveal the strength of momentum in the initial moves to sell global equity risk.

There is very little support if 131.00 breaks on SPY, which will draw in targets of 129.50 and 127.50 if momentum builds in global equity selling. However, ahead of the non-farm payroll release on Friday from the U.S., caution needs to be taken at these levels. Congratulations to those who caught the first moves, those positions should be closed or tightened up, and taken again if overnight momentum builds.

Breaks above 1340 on S&P 500 and above 134.00 on SPY, which have been highlighted as major resistance areas, still look to be important price points of note that now look a long way off. Clients were warned not to trust the late session moves on Tuesday night as Wall Street closed, as market momentum and sentiment reads were very disjointed.

ETF Update

The main U.S. ETFs that track technology (XLK) (26.15), energy (XLE) (76.10), semi-conductors (SMH) (35.30), financials (XLF) (15.50), and emerging markets (EEM)(48.00), show little indication that momentum is building, and are back into the previous session ranges after getting caught in the Kentucky Derby-type finish to Wall Street trade on Tuesday. All ETF's will signal short at some stage today, and detail will be sent to clients. Now is not the time to be hanging on to long-equity sector ETF's.

Alternate 24-Hour Trade

Investors who do not want to wait for their regional cash market to open, or do not have 24-hour access to the market they have open positions in, are able to access the 24-hour currency market. There is potential to analyze and trade currencies in a high-volume market that is supported by the global inter-bank system.

Investors can trade currencies in-line with a rising global market, or trade ahead of a falling cash market open. Being able to use currencies offers the opportunity to be in a trade before the regional market opens.

Traders could trade the currency pair AUD/USD in line with the potential seen in global equity and commodity movement. Buying the US dollar and selling the Australian dollar is a simple process of placing a sell order on AUD/USD, and then closing that same position in a similar way that equity trades would be bought and sold.

If global market trade favors the selling of S&P 500 below 1325 a potential trade signal will be issued on AUD/USD. Selling AUD and buying USD via this currency pair from 1.0670 draws in 1.0650 and 1.0580. The trade signal sent to clients earlier with a break of AUD/USD (1.0690) going lower from 1.0710 has hit its Target 1 areas, and is on its way to 1.0670.

S&P 500 Price Action

Strong buying activity was seen at 1330 on S&P 500 trade in April and May. The market has moved lower and broken this major swing point area, and will now be closely monitored. Market alerts and updates will be sent to subscribers when price action moves look to be sustainable.

Main S&P500 support: 1295. Main S&P500 resistance: 1340.

Daily trading range on S&P 500 is 16 points, which is above the historical norm and indicates that volatility is increasing, in low-volume markets.

ETF Price Action

The SPY trade ran into a wall of resistance in April and May at 134.00, which will now be very difficult to break. The trade desk will pay close attention to price action as the week unfolds, and expects a lot of price gaps to form between each session open and close. Volatility will build if the pattern of Asian and European trade moving S&P 500 futures valuations overnight continues.

Main SPY support: 131.00. Main SPY resistance: 134.00.

TheLFB trade desk generates trade signals that highlight specific price points to trade from, and market alerts that highlight sentiment changes in global markets. TheLFB provides 24 hour market support for traders, investors, and institutions. Service offerings include analysis of three asset class areas:
  • Foreign Exchange (Dollar Index, EUR, GBP, AUD, CHF, CAD, JPY)
  • Equity indices and ETFs (SPY, DIA, GLD, SLV, USO)
  • Commodities (Gold, Oil, and Silver)

TheLFB is great for all skill levels. Receive market support, and get TheLFB trader advantage. Sign up today!

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.

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