US Market Roundup: 4 Day Streak Broken But Bearish Pressure Continues

US stocks snapped a four-day decline yesterday, with S&P 500 gaining 0.38%. Dow 30 continue to be the bearish twin between the two, closing slightly lower at -0.05%, but did manage to rally higher during the day, almost gaining 65 points at one point (0.42%) before sliding down to just above 15,000 during the final hour of trade. The same occurred in S&P 500, with prices gaining as much as 0.78% during the day. Once again, there wasn’t any major news releases during the day, while the rest of the global markets were bearish across Asia and Europe. Hence it is interesting to see US Stock prices bouncing up higher during the day.

Perhaps the reason for yesterday’s mild bullishness is 3 pronged. Firstly, we could be on a technical rebound as both S&P 500 and Dow 30 are sitting on support levels following the four-day decline. There are also some slight good news from big names such as Best Buy who reported earnings that beat estimates. Lastly, US10Y prices actually rebounded off the 125.0 level on a technical rebound one day prior. While this does not really suggest that the latest taper fears have reached its natural end, it is highly conceivable that stock traders will be relaxed to see yields coming down slightly, and thus slightly more optimistic.

However, we need to address the elephant in the room which is the decline towards the end of the day. The only possible bearish fundamental news yesterday was the lower than expected Chicago Fed Nat Activity Index, which came in at -0.15 vs expectations of -0.10. This is considered a minor economic number and has rarely, if ever, moved markets. Furthermore, this figure was released before US stock market opened, and hence cannot be used as the reason for the late session decline. Looking back at US Yields again, it seems that prices of the benchmark 10Y came down again after hitting resistance in the form of downward trendline. The slight increment in yields most likely is the smoking gun which resulted in the “re-spooking” of equity traders, resulting in S&P 500 halving and Dow 30 giving up its entire gains.

S&P 500 Daily Chart

From a technical perspective, price is still straddling along the same support level of Monday. Stochastic readings has now fully turned around and is pointing higher, suggesting that a bullish cycle may be in play soon. As this is the Daily Chart, a proper bull cycle will be far reaching, and as such traders would still be able to enjoy sizable gains if confirmations for a 1,650 rebound/bull cycle are sought. This may translate in practice for a break of 1,680, or perhaps back above 1,700 before long positions are entered. Reason for prudence would be due to the fact that fundamentals seems to favor downside between short-mid term on QE Tapering fears. With US10Y looking likely to rebound lower, technicals of stocks do not truly line up with fundamentals, and hence caution should be practiced.

Dow 30 Daily Chart

The same could be said of Dow 30, who is mimicking S&P 500 movements despite it being the more bearish of the two. Should S&P 500 break 1,650, it is possible that Dow 30 may do one better and head towards 14,600~ support, ignoring the 14,850 soft support level. Conversely, if 15,000 is held, the chances of S&P 500 moving back towards 1,680 increases.

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