US Market Roundup – Lower on Minor Disappointments

On a day which Apple Inc. reached $500 a share for the first time since Jan 2013, US stock market actually suffered a modest retreat. S&P 500 closed 0.52% lower, while Dow 30 went one step further, falling 0.73% by the end of the day. It is interesting to note that the once influential Apple which once dragged the rest of the stock markets higher and lower is losing its relevance in terms of investors sentiment. This is perhaps a sign that the strength of Apple as a company is losing its shine, especially since Android devices are out-selling Apple products, but another reasonable explanation is that market is no longer looking at big names for indication of broader risk sentiment – which means that the focus is back on fundamental economic news releases.

Case in point, US market gaped lower on open and traded consistently lower following the release of latest Producer Price Index. Latest PPI numbers for the month of Jul (Y/Y) came in 1.2% higher versus an expected 1.3%, and a significant 50 bps lower than the 1.7% June print. M/M showed no growth when a gain of 0.3% was expected, which is also another 50 bps lower than last month’s 0.8% growth itself. A lower than expected inflation growth may not necessary be a bad thing in itself, especially not in the past few years when perceived inflation risk was high due to all the Quantitative Easing measures. A lower inflation back then suggest that Fed will be able to continue pumping in stimulus. However, with talks of tapering increasing, a lower inflation does not give us the benefit of more upcoming stimulus, and investors are bearing the full brunt of the negativity that a lower inflation number suggest – a lack of demand when US market is supposedly climbing out of the recession. To compound matters, latest MBA Mortgage Applications numbers actually fell 4.7%, compared to a growth of 0.2%, hinting of weakness in US housing market, one of the key driver for consumer confidence and economic health, and the spark that resulted in the original credit crisis back in 2007.

The question is do all these small news change what the more important numbers tell us? ISM Manufacturing data and latest NFP Print actually agree on a recovering economy, while it is important to note that the most dovish Fed member Evans has also switched camp to favor a taper within 2014. If it is good enough for the Fed, it should be good enough for the market, no? If you remain unconvinced, it should be noted that these minor economic numbers tend to be highly volatile, showing large gains one month and followed up by losses the next. Hence it is important to not just take a monthly snap shot and assume that a singular month of shrinkage or under expectation can be extrapolated to indicate a full turnaround of economic direction.

S&P 500 Daily Chart

With this in mind, the support level of 1,680 have a slightly better likelihood of holding up. Stochastic readings currently is pointing lower in the midst of a bearish cycle, but readings have been above to find support/resistance around this levels recently, as such a rebound from current levels should not be all too surprising. Nonetheless, even if 1,680 is broken, current stochastic level which is expected to move lower will be likely to hit Oversold region just when the Channel Bottom is being tested, potentially allowing price to rebound higher from there.

Dow 30 Daily Chart

Dow 30 chart is less bullish, with the 15,450 support already broken. However, stochastic readings are closer to the oversold region compared to S&P 500. Given the same broad fundamentals, and also the fact that 15,250 support remains untested, it is possible that price may be able to rebound from there if we ever reach it.

Given the slight difference in bullish/bearishness of the 2 main indexes, traders can watch out for key indication if broad sentiments are moving higher or lower. Should Dow 30 break above 15,450 again, it is likely that S&P 500 may rally even higher. Conversely, a break of Channel Bottom by S&P 500 will suggest that a break of 15,250 is more likely, or a bearish follow-through may be further if 15,250 is already broken.

More Links:
GBP/USD – Back Through 1.55 Again
AUD/USD – Rests on Support at 0.91
EUR/USD – Returns to Support Level at 1.3250

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