US Stocks snapped the 8 day winning streak yesterday, registering the 1st loss in 9 sessions. S&P 500 fell by 0.37%, while Dow 30 was less severe, falling by 0.21%. A large part of the decline can be attributed to risk aversion following the decline of major companies stocks such as Coca-Cola Co and Goldman Sachs, both falling despite meeting Q2 performance forecasts, with investors getting concerned over future prospects. This risk aversion spilled over to the rest of the US market as uncertainty grips with Bernanke scheduled to deliver reports to House and Senate today and tomorrow respectively. What we’ve learnt from this is that market is now currently much more cautious as compared to Q1 earnings season, suggesting that just meeting earnings and revenue targets are not enough for stock prices to rally anymore, unlike the previous round. Whether this is truly due to the looming Bernanke’s event risk or a shift in sentiment, we will be able to find out clearer on Friday after the dusts have settled.
Dow 30 Hourly Chart
From a technical perspective, the decline in stocks isn’t exactly surprising as price as been hitting a brick wall of 15,475 where Dow 30 is concerned. Currently we are in the midst of a bullish cycle with Stochastic reading rebounding from Oversold just when price rebound from the 15,400 support. However, there is an interim resistance around 15,440 which could derail current bullish recovery. The same “resistance” can also be seen from the Stochastic indicator around the 50.0 level, where stoch curve has found support in the past few days mid cycle. This allows for the possibility that price may still be able to push below towards 15,400 once more, considering that Asian Markets is currently bearish.
S&P 500 Hourly Chart
The bearish sentiment is felt heavily by S&P 500, who broke its rising Channel, and finding support around 1,671. Similarly to Dow 30, Stochastic readings also favor a move lower back towards the Oversold region despite being mid bullish cycle currently. With a soft resistance around 1,676, it is possible that price may find the resistance too strong to break given current risk aversion in Asia, and opens the door back to 1,671 again.
Traders should continue to watch out for earning reports that are coming out fast and furious and see the response from markets. Should familiar names hit or even exceed expectations but stocks trade lower, we could be potentially setting ourselves up for a longer term bearish correction. Previously, stocks missed their earning expectations but came up mostly higher after earnings season (see 3M), it is possible that the reverse is true this time round.