We had a preview of US Non-Farm Payroll yesterday. The ADP National Employment Report, which measures levels of non-farm private employment which spans across 19 major North American Industrial Classification (NAICS) private industrial sectors showed surprisingly good growth in employment. The month of Jun saw a growth of 188 thousands new jobs versus an expected 160K. This is the first time in 4 months that the monthly ADP print is higher than expected, and the first major employment data that has been released since Ben Bernanke’s toyed with the idea of tapering current QE plan.
To add icing on the cake, weekly jobless claims for week of Jun 29 came in slightly lower than expected, while continuing claims as of Jun 22nd fell by more than 50k, coming in lower than expected as well. All the indication point to an improving US economy – most pertinently the employment market – and suggest that Bernanke may be right to think that QE3 tapering is justified.
Bear in mind that all the aforementioned data were released BEFORE the opening bell of US. However, despite the stronger signs of economic growth, US stocks indexes gaped lower, and traded further lower on the open. This is not all too surprising considering that we’ve mentioned recently that market is actually actively searching for BAD news, not good. Any worse than expected figures allow market to continue living the dream that Bernanke will decide to recant what he said on QE Taper (hint: highly unlikely considering his term ends in 6 months). Any good news especially on the topic of inflation or employment numbers will actually pull market prices down as the realism of QE tapering increases.
Stock prices did eventually recover and traded higher, closing 0.08% higher than previous close for S&P 500 and 0.38% for Dow 30. This is interesting considering that Asian and European stocks both closed lower, suggesting that it was a bad day where risk appetite is concerned. Hence the recovery rally post initial dip is peculiar to say the least. Perhaps there is an element of short-covering considering that it was a half day trading session, with 4th of July a bank holiday. Or perhaps we need to start to reconsider the validity of the assertion that market is still buying on bad news and selling on good, and start to consider that maybe market is genuinely rallying higher following stronger US fundamentals. With NFP coming tomorrow, we have a good validation for our hypothesis. Event though ADP tend to have poor correlation with NFP, with continuing claims and weekly claims decreasing, we are in a good position for a strong NFP print this Friday. Should NFP does indeed surprise to the upside, continue to observe whether US stocks rally, or trade lower towards the end of the trading session for a better view on what market is thinking right now.
Dow 30 Hourly Chart
From a technical perspective, yesterday’s rally was not enough to switch the mild bearish bias to a bullish one. Prices were not able to push above the Channel Top, but was instead rejected and sent lower, trading below the critical 15,000 level. With Stochastic readings staying Overbought, we are potentially looking at a bearish move towards Channel Bottom and potentially 14,850 support in the near future. That being said, there is currently no evidence whatsoever that the bearish move is happening right now. We could still potentially see price breaking above 15,000 and Channel Top, to bring us towards 15,060 previous swing high once more. With US market closing today, there is a higher possibility that prices will be influenced by Asian and European risk trends today. Asian stocks are doing fairly bullish except for Nikkei 225, going by that reasoning, there is actually a decent likelihood of price breaking for higher grounds from here. It will basically be a fight between risk trends and technical bears.
S&P 500 Hourly Chart
S&P 500 faces the same descending Channel, but price is not immediately under the threat of technical bears. In fact, current setup for S&P 500 favors current risk trend moves for further rally towards Channel Top. Hence, should S&P 500 actually pushes lower without testing Channel Top, there can be a stronger case to be made that US traders are bearish, as such the likelihood of Dow 30 bouncing lower from its own Channel Top increases.
On the USD front, Greenback is weaker than all major currency except for AUD, which had a torrid day thanks to RBA Stevens’ bearish guidance. This suggest that the inverse relationship between US stocks and USD still remain. Similar to the relationship between news event and stock prices, traders will do well to monitor such correlation post NFP Friday.
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