US Market Roundup: Bulls In 7th Heaven

The bullish sequence for S&P 500 was extended by one more day, but the absolute daily gain has dwindled down to merely 0.31%. This wouldn’t necessary be an issue if not for the fact that Dow 30 has rallied more than double, closing 0.89% higher. Furthermore, if we look at yesterday’s price action, we would be able to notice that S&P 500 actually traded underwater for the earlier part of yesterday, while Dow 30 was trading higher off the starting block.

Does this constitute divergence between these 2 major indices? Hardly, as S&P 500 did manage to close higher eventually, but certainly it is worrisome as it seems that broad bullish sentiment is the only thing that is stopping the divergence from happening – the precursor to greater sell-off according to Dow Theory.

However, if we try to delve into the reason why the decline occurred, the problem may not seem as severe. It seems that the early decline yesterday could be attributed to Apple Inc which fell more than 5% on open. As Apple is the largest component of S&P 500, it is no surprise that such a fall spilled over and influenced the rest of the S&P 500 stocks, pushing the index lower. This explanation actually suggest that bullish sentiment is strong enough to repel mighty Apple’s influence, which implies that the strong bullish sentiment may continue to run further.

S&P 500 Hourly Chart

There were certainly some help from technicals too, as price found support via Channel Bottom and allowed price to rebound higher despite no fundamental news releases during the time period. The consolidation zone during Asian/European session was broken, allowing price to continue heading higher and closing at the day high.

Asian traders are currently bearish, continuing the behavior that we’ve noted in the past. This bearishness prevented price from hitting Channel Top but it is unlikely to derail current bullish rally with Channel Bottom already higher than the consolidation ceiling of yesterday. Given that bullish sentiment is not going to go away soon, we could see prices dipping lower to Channel Bottom and rebounding higher during the more bullish US session similar to yesterday. Stochastic indicator may show a bearish signal but stoch curve may also reverse quickly as there have been preceding troughs that reversed around the between 65.0  to 80.0.

Dow 30 Hourly Chart

Despite being the more bullish one, Dow 30 is also heading lower thanks to Asian prudishness. Furthermore, the next significant level of support may be further away due to yesterday’s strong rally, giving bears ample space to pullback. This is echoed by Stochastic curve. Even though troughs can be formed above the Oversold region similarly to S&P 500, the major line of “support” for stochastic curve is around 50.0, much lower compared to S&P’s. Hence a larger pullback for Dow 30 can be reasonably expected – caveat being bullish sentiment no longer in play.

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