It was another good day for US stocks, as the rally in stock indices continued for a forth consecutive day. Dow 30 gained 0.50% while S&P 500 grew 0.72%, and more importantly, clearing the 1,650 resistance found back in mid Jun. The increase in stock prices is peculiar considering that IMF actually cut global growth forecast to 3.1% from its earlier estimate of 3.3% back in April. Within US, there wasn’t any major news releases, with only NFIB Small Business Optimism survey results coming out, but even that is negative – 93.5 vs 94.9 expected and lower than previous month’s 94.4. Looking across the Atlantic ocean, UK numbers aren’t doing well either, as both Industrial and Manufacturing production came in much worse than expected, showing signs of hastened decline.
However, despite the negativity, FTSE100 (UK main stock index) actually came out on top, closing almost 1% higher from the opening price. Similarly, European stocks also fared well. Germany DAX grew 1.12% while Stoxx50 moved up 0.50%. All these happened despite the bearish economic news that were flooding the newswires. With this in mind, it is not difficult to understand why US stocks indices are able to push higher even though there is basically nothing truly bullish. Everything is fueled by improving risk appetite and speculative behaviors.
S&P 500 Hourly Chart
What this mean for S&P 500 as we clear the 1,650 mark is that we could potentially see continued bullish pressure arising from technical bulls trying to reach to the previous 2013 high. It will be great if there can be strong fundamentals supporting bullish movements, but even without it, it is possible that current strong risk appetite may be able to simply take prices higher away from here. In the event of negative news (e.g. FOMC minutes today 2:00pm EDT), this strong risk appetite will be able to give price a better chance of surviving any short-term downtrend.
From a technical perspective, price is currently settling on the 1,650 level comfortably. With rising Channel bottom approaching fast, it is possible that we could see price being nudged higher towards Channel Top. With the distance between rising purple trendline (which is the only significant resistance for now) and current price still remaining wide, bulls will be able to have ample legroom to stretch higher.
Looking at Asian markets currently, Nikkei 225 and Hang Seng Index are currently trading higher, which is a good sign that the risk appetite described earlier is continuing – putting bulls in a good position to push up higher today before the FOMC minutes event risk later.
Dow 30 Hourly Chart
Dow 30 is fairly similar to S&P 500, currently around 1% away from the historical high. 15,300 is the 1,650 equivalent, and Dow stocks are also similarly likely to be able to enjoy the same bullish optimism/risk appetite as S&P 500. However, Dow has a slight technical advantage as Stochastic readings on Dow is actually less Overbought compared to S&P 500. As a general rule of thumb, short-term oscillator (e.g. Stoch, CCI, RSI) countertrend signals tend to be less reliable, and hence even though S&P 500’s readings are currently extremely close to Overbought territory, this does not necessary automatically invalidate any potential bullish endeavors. Nonetheless, being less extended certainly will allow further bullish extension, and we could potentially see Dow 30 being the dark horse and outperform S&P 500 today especially if FOMC meeting minutes proved to be more bullish than expected.
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