US S&P 500 – Stocks Feeling Taper Heat But L/T Bullish Momentum Intact

The slide in S&P 500 continues with the most popular stock index shedding 0.36% yesterday. The decline was sparked by FOMC minutes which stated that voting members believe a tapering action will be warranted in the next few “coming months”. However, this belief is not without conditions, and Fed members have once again tagged the condition of taper to continued strengthening of labor conditions and the overall US economy. All in all, this is not really anything new, there are few analysts that believes that QE 3 will continue well deep into 2014, but even fewer think that a tapering action will in December. Most of the market players have always thought that a taper during early 2014 would have been the most likely scenario ever since September tapering didn’t happen.

Hourly Chart

Nonetheless, Stocks were already inherently mildly bearish before the release of the minutes, and it could be possible that bears simply took advantage of the minutes as an opportunity to sell into. From a technical perspective, prices were already capped by the descending Channel Top, which opens up Channel Bottom as the immediate bearish target. Furthermore, it should be noted that Tuesday’s dovish speeches by Bernanke, Yellen and Evans combine couldn’t pull stocks up, implying that sentiment was also bearish, or at the very least this implies that the sensitivity towards Taper/No Taper talks/development has lessen.

This would mean that we should not be seeing strong continued bearish movement emerging from here, and a move back towards Channel Top is actually possible. Right now price is straddling Channel Bottom lower, while Stochastic readings are close to the recent lows in the past 2 weeks, favoring an eventual bullish pullback. However, considering that overall sentiment/technical direction of stocks is actually bearish, a channel top move can only be confirmed should 1,783 and preferably 1,785 is broken.

Weekly Chart

Bullish bias remains on the Weekly Chart, with prices remaining above Channel Top for now despite recent sell-off. Stochastic is extremely overbought though, but mathematically it is still possible for Stoch readings to head to the 100.0 point, keeping current bullish momentum intact. Hence, a rebound from here should not be ruled out for now even though price may seem overextended with a potential tapering in 2014 and corporate earnings mostly below early 2013 expectations (which has since been revised lower).

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