US Market Roundup: Bears getting close, but no cigar

US stock indexes closed lower yesterday despite a stronger than expected ISM Non-Manufacturing Composite number. ISM’s latest figures showed that service sector is growing at a much faster pace than expected, coming in at 56.0 vs a 53.1 expectation and 52.2 previous. The highest reading in 5 months is apparently not enough to keep bulls afloat, underlining the strong bearish sentiment surrounding stocks yesterday. This can’t be described as all too surprising considering that prices were already depressed last Friday due to a weaker than expected NFP print. Monday’s Asia session continued the risk off sentiment which saw Nikkei 225 closing 1.44% lower, while other major indexes such as Kospi and STI both clocked in losses as well. The same bearishness affected European stocks as well, with major bourses trading lower across the board. Hence it is reasonable to believe that the same risk aversion sentiment pulled US stocks lower, allowing investors to ignore the improving economic numbers.

Another reason why the improving economic numbers didn’t push stock prices higher could also be due to the fact that traders are concerned that the Fed may initiate tapering measures sooner rather than later. However, looking at recent reaction at bullish news (e.g. better than expected ISM Manufacturing, ADP Employment, Jobless Claims), it seems that the market has grown out of the “good news = bad, bad news = good” behavior. Furthermore, the fact that the recent NFP miss actually resulted in lower stock prices is a good sign that stock prices is actually positively correlated to good news, and not the other way round.

S&P 500 Hourly Chart

Looking at technicals, we can see S&P 500 pushing deep into the Kumo, seeking out Senkou Span B after breaking the 1,704 support. However, a full on bearish reversal is still not in play yet, with the rally from 1st August remaining in play. Technical indicators do not support further bearish movements, with Senkou Span B able to provide support, while forward Kumo has yet to form a bearish Kumo twist. Stochastic readings have recently dipped into the Oversold region, but this is the lowest stochastic readings has gone since 26th July.

In order for bears to invalidate current rally bullish pressure, 1,700 should be broken ideally, which would mean that a bearish Kumo breakout has taken place and is likely to coincide with a bearish Kumo twist. Stochastic readings would be deeper within the Oversold region, but considering that price has been generally consolidating between 1,704 – 1,708 ever since stoch line touched Overbought region back last Friday, current Oversold indicator can be disregarded as an oversensitive curve due to lack of volatility before.

If a rebound does happen off Senkou Span B, then we could potentially see a climb back towards 1,704 and preferably a break of the level together with a Kumo breakout which may allow for further bullish acceleration towards the record highs of 1,708 and potentially beyond.

Dow 30 Hourly Chart

Dow 30 remains more bearish compared to S&P 500, with a Kumo breakout. However, we are still trading above last Friday’s swing low, hence keeping the higher highs, higher lows uptrend sequence intact. Forward Kumo bearish twist is also sorely lacking, while Stochastic readings are around the same levels of that of S&P 500. Not everything is similar though, as Dow 30 has gone through a much larger percentage decline compared to S&P 500, and we can see that current bearish movement and recent bearish movements have been more pronounced than that of S&P 500. Assuming that the uptrend is actually still in play, Dow 30’s current setup is in a better position for a Stochastic rebound compared to S&P 500.

More Links:
AUD/USD – Rallies to Back Above 0.89
EUR/USD – Resistance at 1.33 Stands Firm
GBP/USD – Moves to Threaten Resistance at 1.54 Again

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