US Stocks climbed higher last night on stronger fundamental data. The Case-Shiller Index which measures the housing market showed a 12.1% growth Y/Y in the month of April. M/M growth came in at 2.5%, the highest monthly gain since the Index started back in 1980s. The good news do not end here, US Consumer Confidence for month of Jun came in at 81.4, blowing expectations of 75.1 out of the water, and a huge improvement from previous month’s 74.3 (revised lower). Wait, that’s not all – Durable Good Orders in May rose by 3.6% vs 3.0%, while Richmond Fed Manufacturing Index came in at +8 vs an expected +2. That is 4 better than expected news out of the 4 major US news release yesterday – pushing S&P 500 0.95% higher, while Dow 30 gain a modest 0.69%.
However, upon closer inspection, it seems that the gains attributed to the 4 good news may not be wholly accurate. It is worth noting that closing prices for both S&P 500 and Dow 30 were lower than the open, and the gains mentioned earlier is attributed to the opening gap, and not due to the good news announced post US open. That’s not saying that the US news aren’t bullish – price did manage to trade higher after opening, but it seems that bulls were not able to hold onto the gains, underlining the strong bearish sentiment. Also, the bullish factor that contributed to the opening gap is not due to anything related to US, but rather due to the PBOC press conference towards to end of Asian trade which saw Shanghai Composite Index reversing its more than 5% intraday loss to trade flat by closing. This sudden bullishness pushed European stocks higher, and similarly spilled over to the US markets.
What this mean is 2 fold – the gains we saw yesterday has a higher likelihood of being a one-time adjustment, as PBOC’s announcement merely underlines their intent to stabilize the recently volatile Chinese markets. The second part, and perhaps more important detail is that US markets is still remaining bearish, due to bulls spotted not being able to maintain the bullish gains brought about by the positive news AND the better sentiment of the market (by virtue of closing below the opening gap).
S&P 500 Hourly Chart
From a technical basis, S&P 500 has broken away from the downward trendline that characterized the decline post Bernanke’s Taper announcement. This is a bullish sign, and clearing 1,575 is a testament to current bullish correction. However price should ideally clear to 1,585 and 1,600 figure to have a chance of reclaiming 1,625 to restore back previous bullish bias. Without which, overall pressure will remain bearish and rallies will be seen as corrective. Stochastic readings also agree with a bearish outlook, with readings pointing lower with price trading below 1,585.
Dow 30 Hourly Chart
Though Dow 30 chart looks similar to S&P 500, the possibility for a upside down flag pattern fits this chart better than S&P 500 (you can draw a rising channel for S&P 500, but it does not fit price points as well, but that is highly subjective). A flag pattern suggest a continuation of incumbent trend, which increases the possibility of Dow 30 breaking interim support around 14,675 and confluence with Channel Bottom to head back towards the larger descending Channel (or flagpole). Similar to S&P 500, Stochastic readings also favor downsides with readings pointing lower.
On the USD front, it is noted that the positive correlation between USD and Stocks is back, with USD strengthening against all majors other than AUD on a D/D basis. Looking at the specific timings when Durable Goods and Consumer Confidence data were released (8:30am and 10:00am EDT respectively), we can see spike down in EUR/USD and up in USD/JPY, which shows USD positive sensitivity towards better news release. Is this positive relationship to stay? If yes, then with a bearish US Stock outlook, we could see weakening of USD once again moving forward.