S&P 500 – Early Signs Of Break But 1,890 Still Holding For Now

US stocks extend gains with S&P 500 reaching yet another record high, crossing the 1,890 round figure and achieving yet another record close. The less bullish Dow Jones Industrial Average also came close to the previous record high as well, missing the target by a mere 0.01 point.

However, it should be noted that the magnitude of gains is actually much lower compared to Tuesday’s jump, while Nasdaq 100 which is expected to outperform S&P 500 and Dow Jones Index during “risk on” trend came in last at +0.21%, suggesting that bullish momentum may be waning. This shouldn’t come as a surprise as fundamental justification for higher stock price remains weak. Yesterday we’ve seen stronger than expected Factory Orders (1.6% vs 1.2% expected) which kind of made up for the lower than expected ISM Manufacturing PMI and Markit Manufacturing PMI earlier this week. But there were also bad news in the form of ISM New York which has decline significant and a lower than expected ADP Employment Change. Mortgage Applications continues to fall as well, heightening the “all’s not well in US” suspicion that market watchers are having right now.

Hourly Chart

Nonetheless, bullish momentum lives on, and S&P 500 appears to be clearing the 1,890 properly once and for all. Technicals are looking good with support to be found from the rising trendline. Stochastic curve has also reversed, looking likely to cross Signal line and forming an interim trough around the “support” level of 60.0. However, if 1,890 resistance proved to be too strong for the bulls, a break of the rising trendline becomes likely and we could easily see a move towards 1,882 soft support in quick succession.

Daily Chart

Daily Chart is not the most encouraging for the bulls right now as we have a spinning top candlestick around the aforementioned resistance level. This is not necessarily a bearish reversal pattern (at least not yet) but the possibility of a reversal cannot be ignored given that Stochastic indicator is within the Overbought region already. When we factor in the not favorable fundamentals, the downside risk becomes even higher. That being said, there is no evidence that momentum has reversed, and conservative traders should hold for confirmation of bearish reversal before committing. On the other hand, chasing the bull train may still yet yield positive gains as well as a breach of 1,890 may lead to 1,900 easily and yet more euphoria may bring us even higher. However, knowing that downside risks are huge, proper risk management will be the utmost importance and traders may even when to factor in the scenario that huge slippages may occur for their stop losses if a drastic sell-off does happen just like the huge slide back during the early days of financial crisis.

More Links:
GBP/USD – Little Movement As Construction PMI Misses Forecast
USD/CAD – Steady After Strong ADP Job Numbers
AUD/USD – Aussie Shrugs Off Dismal Building Approvals

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