US market rallied yesterday, with S&P 500 closing 1.25% higher and Dow 30 slightly more modest at +0.83%. The rally was brought about by a much stronger ISM Manufacturing number and an improving job market, evident via a continued fall in both initial jobless claims and continuing claims.
Now the big question – which one was the bigger driver yesterday?
To answer that question better, we should take a look at price action more closely. It should be noted that the major bulk of yesterday’s rally came from an opening gap, which automatically eliminates the ISM Manufacturing bullish factor as that was only released after market has started trading. It seems that market may be placing more emphasis on the Jobs data, which came in 1 hour before market opening, and is the smoking gun that allowed S&P 500 to gaped above 1,700 on open yesterday.
Some of you may raise the point that Futures prices were already trading much higher from Asian hours due to Nikkei 225 surprising resurgence. There is definitely truth in that statement, as the overall risk sentiment most likely helped encourage US stocks to be more bullish yesterday. However, it should be noted that even Futures did not cross the 1,700 mark until the jobs numbers have been released. There is a possibility that bulls were simply looking for reasons to buy especially since US stocks have been noted to be slightly more bullish than the rest of the world on Wednesday, but that argument falls when the much stronger than expected ISM Manufacturing figure did not illicit a similar bullish reaction.
S&P 500 Hourly Chart
From the technical perspective, price is currently trading within a newly formed Channel. Following the break out of 1,700, prices has found resistance underneath Channel Top, but we’ve yet to see any significant pullback back towards Channel Bottom. Stochastic readings are also overbought, but readings are seemingly hesitant about breaking the 80.0 level, and as such a bearish cycle signal is not yet formed. Given the strong bullish impetus, it should not be surprising to see prices straddling the Channel Top higher even if it remains unbroken. A bearish move can only be confirmed if we break below the soft 1,702.5 -1,704 support which should coincide with a stoch 80.0 break.
Dow 30 Hourly Chart
Dow 30 is more bearish than S&P 500, but that was already noted yesterday. Current price is barely above the 15,600 significant resistance, and we are actually trading below the trendline which has been supporting the Futures rally since yesterday’s Asian session, suggesting that bullish momentum has already faded for Dow 30. Given that NFP event risk is coming tonight, a negative print will most likely impact Dow 30 much more than S&P 500 and vice versa due to the difference in underlying sentiment. On the other hand, if Dow 30 does trade higher and push back above the rising trendline, this would mean an extremely strong bullish sentiment which may signal an even stronger bullish reaction of S&P 50. The opposite would be true for Dow 30 should S&P 500 fall back below 1,700.