US Market Roundup – Stabilizing in wait for earnings season

US Stocks gained ground yesterday, with S&P 500 closing 0.53% higher while Dow 30 climbing 0.59%. However, this gain does not appear to be fundamentally driven with yesterday’s newswires staying silent during the US trading session. No scheduled economic news, nor any serious Geo-political incidents. In fact, looking at the underlying stock indexes, most of the gains were acquired on the opening gap, which is a result of positive risk appetite flowing into the US market before market open. Price traded mostly flat during the entire session, and threatened to trade below the opening price after the lunch break, only to see slight recovery when it was announced that Euro Finance Ministers have approved a 3B EUR aid payment to Greece, revitalizing risk appetite but not by a great distance – with the resultant recovery trading within the previously set intraday range.

From here we can learn a few things – The market was already expecting Greece not to fall, hence the muted reaction to Greece’s bailout. Bear in mind this 3B aid payments is not the full deal, but rather just a loan to help Greece bridge the gap that it needs in order to appease the IMF for future larger bailout funds. 3B is certainly not a huge amount (Apple.inc could have simply lent the money to Greece, if they ask nicely enough), and hence the threat of a bailout suspension from the IMF was never truly in doubt, but rather became a backdrop compared to the spotlight currently on China’s credit crunch and Bernanke’s QE Tapering (market is getting less jittery with QE tapering now to be fair).

The second observation is that US equities are remaining bullish, and is still sensitive to global risk appetite. This may prove to be important as Q2 earnings season is coming. With stronger global risk appetite, we could potentially be seeing stock prices rallying higher/or remaining supported despite missing earnings targets. This would also imply that S&P 500 and Dow 30 would have a higher likelihood of staying where we are currently, or perhaps ending earnings season higher than where we are now.

Dow 30 Hourly Chart

From a technical perspective, price is currently trading below the rising trendline and consolidating between 15,160 and 15,230. Looking at stochastic, the overall pressure is down, but do not be surprise to see price being able to breakout and reach towards the rising trendline once again especially if market is bullish during Asian hours. Downside targets are also possible, but preferably we should see Stochastic readings breaking below the “support” around 65, which is the previous trough formed towards the end of US trading session, and the basin during early Asian trade yesterday. This would make a better case for price to move towards current consolidation floor and prevent an interim Stoch trough forming where we are right now.

S&P 500 Hourly Chart

S&P 500 is a little bit more bearish in this regard, with Stoch levels flattening and looking likely to continue current bearish cycle. However, given the strong correlation between S&P and Dow indexes, it is unlikely that Dow can trade higher while S&P 500 will trade lower at the same time. Nonetheless, if we start to see strong bearish sentiment in the broad market, S&P 500 may perhaps react stronger to the downside as compared to Dow, and vice versa should we see an increase in risk appetite today.

More Links:
EUR/USD – Rallies Off Long Term Support Level at 1.28
GBP/USD – Pound Fights Back After Recent Losses
USD/CAD – Loonie struggling above 1.05 Despite Strong Canadian Construction Data

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