US Market Roundup: Stocks Rallying With Automobile Industry Recovery

US Stock indexes traded higher yesterday. S&P 500 gained 0.81% while Dow 30 climbed 0.65% higher. The main driver for yesterday’s rally was mostly attributed to strong sales number posted by General Motors and other car makers, representing the strongest month in 6 years. The impressive automobile sales figures suggest that US consumer spending is strong, which is a key building block for the economy to continue it’s recovery. Perhaps more importantly, we can also infer that consumer sentiment is actually not bleak despite all the hoo-hah surrounding Fed tapering, Syria, and whatever bogey monster of the month mass media is concerned about.

This bullish sentiment was fully transposed into the stock markets. Both S&P 500 and Dow 30 traded higher and stayed there – a very strong bullish sign. There wasn’t any major blips despite the US Senate Foreign Relations Committee authorized Obama’s request for military action, bringing us 1 step closer to yet another US – Middle East war. By ignoring such a major development in the Syrian crisis, the market is showing us the strong underlying bullishness sentiment.

S&P 500 H4 Chart

From a technical perspective, S&P 500 has managed to break above the 1,450 key resistance. Price broke the confluence between the descending trendline and the soft 1,646 resistance in the process, helping to alleviate the bearish pressure that has been in play since mid August. However, without clearing 1,670 (swing high of 26th August), there will still be lingering doubt remain whether bears will be able to pullback. This is a reasonable concern given that Stochastic readings are already pointing lower within a high Overbought level. That being said, there isn’t any strong sign from price action that a bearish move is happening right now, and hence bears may wish to wait for a move below 1,650 which will most likely be accompanied by a break of 80.0 for Stoch to give us a strong bearish signal with descending trendline as target.

Dow 30 H4 Chart

For Dow 30, bulls will need to clear 15,150 in order to invoke a stronger bullish conviction. Currently it is difficult to see this rally as anything but a corrective move. Pressure is still firmly on the downside, and we may see bearish acceleration towards the ascending trendline with a 14,850 break which will be likely accompanied with a proper Stoch bearish signal similar to S&P 500.

The past 3 days have been interesting for stocks from a fundamental perspective. Monday rallied higher due to the perception that Obama is losing support for the war (Strong Chinese PMI over the weekend was also a contributing factor but commodities prices suggest that the war factor may be larger), Tuesday we saw prices moving back lower after Obama gained support from Republican leaders. There was also the subplot of QE Tapering scare as seen via Treasury yields but the timing of Tuesday’s decline suggest that the Syrian war factor was the main bearish driver. Fast forward to Wednesday, and we notice that suddenly Syrian news no longer impact the market as it has been for the past 2 days, and instead Automobile sales (generally regarded as a low impact news) received all the limelight yesterday, sending the market higher where Tuesday’s stronger ISM Manufacturing number failed.

Nonetheless, a few things we can learn from here – Syrian scare might have been overplayed and market may not really head lower that much even if war has been declared. Fears of QE Tapering is still in play and may not have been fully priced in, impact of which on equities is still currently unclear, but a bearish effect may be still present. Keep these in mind as we approach FOMC decision in 2 weeks time and as Congress vote draws near. Price reaction for either event may not turn out as how we expect them to be.

More Links:
GBP/USD – Pressure Prevails as it Surges through 1.56
AUD/USD – Moves Strongly to Two Week High just shy of 0.92
EUR/USD – Rallies back to Key 1.32 Level

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