Getting Close

Submitted by Nic Lenoir of ICAP

As expected, since we failed to break 1,095.50 this morning despite lower than expected numbers, the low volume Monday rally monkey was in full force pushing us all the way up to 1,112 in the SPZ9 future. We show the chart of the move since the lows of November 2 on a 15-minute interval scale, and we can see the very clear impulse structure. We are currently in the final leg upward (sub-wave 5 of the impulse, I will not bore you with the details on the degree).

The attached 5-minute chart is updated from this morning to reflect the fractal nature of this final impulse we have been discussing. I believe we need a little more patience and we will have one last push to new highs before the market retraces to 1,033/1,012  which is the medium term key support to the uptrend. If 1,095.50 is violated then we will not make new highs, but at this point on the upside the market is more prone to run extensions than truncate a move up. Once the low of wave 4 is in I will update the final target for the new high.

Equity markets were greatly helped by our dear leader and chairman Bernanke who could not have stated more clearly that he is not going to change anything to the rhetoric in December. It not only sent stocks higher, it also sent bonds higher. Any asset yielding more than 0.15% please stand up! The speech on the USD was met by a brief spike in the dollar index, but whoever panicked at the mention of a "strong dollar" only made sellers richer on the day. I still think Dollar weakness experienced since last December will come to an end much sooner than the market thinks as risk gets re-priced to the upside, and risky assets to the downside with it, but there was clearly nothing to fear from the chairman. 10Y Treasury futures broke through the 200-dma on the upside and celebrated in force with a big rally. From here especially with the holiday week coming up it is to be expected that Fixed Income could well grind higher. We need to close above 119-29 to confirm the break out to the upside but other than a much better than expected NFP report it seems little can stop the rally into year-end. The only week to watch closely is the first week of December, but until then at east in Fixed Income there should not be anything other than carry on the menu.

 

Good luck trading,

Nic