US Market Roundup – Weaker Stocks on Stronger Factory Orders. ADP Next.

US Stocks traded slightly lower yesterday, with Dow 30 closing 0.28% lower and S&P 500 shedding 0.05%. This decrease in stock prices came in spite of an early session rally which saw Dow 30 hitting 15,050 and S&P 500 close to 1,525, which was likely sparked by a stronger US Factory Orders for the month of May, growing at 2.1% M/M vs an expected 2.0%. The fact that bulls not only failed to hold onto the early gains, but even allowed price to trade below the opening levels suggest that bearish sentiment is strong, and continues to echo the peculiar relationship where bad news push US stocks higher but good news drive prices lower.

This relationship has been noted ever since Ben Bernanke disclosed a potential QE Tapering timeline, with speculators betting that a worsening US economy (reflected by worse than expected economic numbers) would force Bernanke to stay his hands, while a better/meeting expectation print would strengthen Bernanke’s resolve to cut down on QE3 purchases, a scenario the market is desperately trying to avoid. With ADP employment scheduled to be release today, we could potentially see the same relationship at play in spades later. Should ADP numbers surprise to the upside, it is possible that stock prices may rally higher on the knee jerk reaction, only to see prices starting to trickle down when the immediate dust has settled, vice versa. This would also be the 1st major employment data released since the fateful QE tapering talk on 19th Jun, and hence it is understandable that more eyes will be on this news event, especially since traders would be using this information as a preview of the upcoming NFP Friday (even though ADP and NFP correlation is not strong historically).

S&P 500 Hourly Chart


Technically speaking, price is currently trading within a descending channel, with Channel Bottom currently under threat once again. Should price break below the Channel Bottom, 1,600 will open up to be the next bearish target, and a break from there will open up 1,585 support and other further lower targets, as the rally from 25th Jun would be severely impaired, A rebound scenario is possible which will open up Channel Top as target. However, price should preferably trade above 1,610 with Stochastic readings and Signal lines pointing higher. However even in such a scenario, short-term bearish pressure would not be impaired, which will continue to put Channel under pressure eventually.

Dow 30 Hourly Chart


The same interpretation applies to Dow 30, just that Dow 30 is more bearish, and a break of Channel bottom is likely to result in the break of 14,850 significant support, potentially sending price down quickly to 14,750 and perhaps beyond. The only issue is that Stochastic does not really support a long-term bearish movement, with readings already close to the Oversold region. Hence, it is more likely that price may find support around 14,750 and potentially rebound slightly before continuing lower.

On the USD front, the inverse relationship between US stocks and Greenback continue to reign. The Bloomberg USD Index DXY is currently trading at 1 month high, breaking the previous resistance. Should US stocks continue to push lower, it is likely that USD will continue to strengthen, which will mean more bad news for GBP, EUR and AUD that all currently suffering from extreme bearish pressures due to the weak fundamentals surrounding their respective economy. Similarly, USD/JPY will be able to consolidate its position above 100.0 round figure should USD continue to strengthen with Stocks pushing lower.

More Links:
AUD/USD – Retail Sales Vs Trade Balance, Winner: RBA
EUR/USD Technicals – 1.30 breached, downside galore
GBP/USD – Pound Drops after Lukewarm UK Construction PMI

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Mingze Wu

Mingze Wu

Currency Analyst at Market Pulse
Based in Singapore, Mingze Wu focuses on trading strategies and technical and fundamental analysis of major currency pairs. He has extensive trading experience across different asset classes and is well-versed in global market fundamentals. In addition to contributing articles to MarketPulseFX, Mingze centers on forex and macro-economic trends impacting the Asia Pacific region.
Mingze Wu