US Market Roundup – Bears holding strong, Futures flat during Asian hours

US stock market traded lower yesterday with S&P 500 coming down at 1.21% and Dow 30 doing slightly better at 0.94%. Things could have been much worse though, with both indexes gaping lower on the get-go and went straight lower. S&P hit a low of 1,560 while Dow came close to 14,550. It was only post midday trade that stocks began to recover (as they usually do with a post midday correction) and averted a larger loss. That bullish recovery failed to inspire a higher opening during Asian hours, with both Nikkei 225 and Hang Seng Index gaping lower on open, but there was at least some positive effect rubbing off Asian traders, with Asian indexes crossing above Monday’s close and heading higher. It remains to be seen whether this bullishness is a pure technical rebound from yesterday’s disappointment, or represent the start of a stronger correction, but regardless the cause, Futures for S&P500 and Dow 30 are trading flat and not enjoying current bullish rally.

S&P 500 Hourly Chart

If we look at technicals, it is not difficult to understand why the same bullishness is not felt in both Futures. The bearish descending Channel post Bernanke’s QE3 tapering announcement is still in play. Furthermore, the post midday recovery that was mentioned earlier failed to break the Channel Top, but was instead pushed lower. Early Asian hours (closer to Australia Open) saw prices nudged higher a bit, but now we are trading right at the Channel Top once more. Perhaps it is a case of once bitten twice shy, bulls will be highly tentative moving forward, and even in a strong bullish backdrop, price could stay around 1,575 levels (which is incidentally last Friday’s low) before a larger distance is available between price and the Channel Top before a stronger bullish sentiment can be built.

Stochastic readings are pointing higher, but there is a likelihood of a Stoch/Signal cross in the next 2-3 candles if price do not move higher. This fits nicely with our Price Action (PA) observation which also suggest that price may see bearish acceleration lower if Channel Top holds. Overall, Stochastic leans towards a slightly bearish outlook with a slight divergence between PA which is definitely lower and Stoch levels which is on par as before. Such divergence if in line with resistance holding, may suggest that the bear cycle may be slightly stronger.

Dow 30 Hourly Chart

With Dow 30 chart looking fairly similar to S&P 500, the above analysis could apply here as well. Substitute 1,575 with 14,575 and we have almost the same chart.

Fundamnetally, it is worth noting that price of S&P 500 and Dow 30 were already heading south before Wed’s announcement. There were some short-term rally in the days leading up to Wednesday, but we were already a fair distance away from 2013 peaks when that happened. Certainly pulling the QE3 lifeline will not help matters, and it is easy to see bearish sentiment continue to take hold in the short-term. However, it is worth noting that the economy growth is comfortable for Ben Bernanke to institute an exit timeline (assumption is that he is not doing this just because his tenure is ending soon), hence that would mean longer term recovery could be in the works.

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