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The S&P 500 Index fell on Wednesday as copper prices dropped and investors were left concerned over a surprise fall in US retail sales.
Copper prices sank by 5.3%, the biggest drop since 2011 on speculation that lower oil will make it easier for copper producers to supply the metal. Meanwhile, the energy space rebounded as crude oil futures jumped 5% from an oversold level and natural gas futures soared 9.9%.
There was also a new record low for the US 30-year treasury note which saw yields tumble as traders sought the income from government bonds. Overall, the flattening of the yield curve could be seen a worrying sign for stocks which finished lower across the board.
The S&P 500 ended the session down by -0.58% though the index did trim losses after a positive consumer spending survey was released from the Federal Reserve.
The index was down by as much as -1.70% at one point and looked to be heading further south but the rebound in the energy sector, combined with the positive spending survey, saw traders trim their short positions. The market ended up moving back past the 2,000 level and finished around the 2,015 mark.
Outlook
Looking ahead, stock traders should be reasonably optimistic given the way the S&P 500 was able to pare losses into the close. However today’s sell off in pre-open is a reminder that investors are nervous. The flattening of the yield curve, and increase in volatility signals that it may not be all plain sailing.
Overall, the pattern has changed. Yesterday’s break below the lower line of a potential ending diagonal [i,ii,iii,iv,v (circle)] cancels the pattern. The question now is how to label the rally to 2064. It could be the first leg of a counter trend bounce to 2070 in which case we see a moderately bullish bias to the market over the next few days with a potential move up to 2,070.
The ending diagonal is a terminal pattern, the fact that the index failed to complete the pattern is ominous. There is now a risk of a prolonged decline after the rally to 2070. If this raly is counter trend the index is likely to decline to 1950-1975 over the next few weeks.
Thierry Laduguie is Trading Strategist at www.bettertrader.co.uk
