US Stock indexes managed to etch out a win yesterday, with S&P 500 closing 0.28% higher and Dow 30 0.12%. This hard earned gains were only made possible thanks to Bernanke’s testimony to the House Financial Services Committee, who delivered a rousing dovish speech, indicating that the “tapering timeline” is actually “flexible”, affirming markets on what he has already said last week – that QE is here to stay for the foreseeable future. Previously, stock futures were heading lower before the news event due to risk aversion during both Asian and European session, with Dow 30 and S&P 500 both hitting its respective consolidation support levels. However, it should be noted that bulls for US stocks remain robust, with both support lines holding even before Bernanke released his testimony transcript 90 minutes before the scheduled speaking time.
That should in theory mean that a bullish fundamental event (e.g. yesterday’s dovish talk) should have been able to help bulls propel to new heights. But price failed to do just that, with yesterday’s gains failing to compensate Tuesday’s losses. From a technical point of view, we can see both indexes facing the same old resistances that has been in play as recent as Monday, suggesting that nothing has changed in the long-term. This is interesting considering that there isn’t any much more event risk for the rest of the week. Yes Bernanke is speaking today infront of the Senate Banking Committee, but it is almost impossible that he will say something drastically different from yesterday. Hence if bulls wanted to buy, they have already been given the chance to do so yesterday, and should not need to wait for further confirmations from Bernanke later today.
Therefore, a reasonable conclusion is that bears are looming ahead as well. This could perhaps explain a little why Goldman Sachs stock prices actually declined despite posting higher than expected revenue and earnings on Tuesday. Ultimately, it seems that market is still feeling jittery after being burned by Bernanke back in June. Therefore, it is entirely plausible that bulls are lying in wait until the end of Bernanke’s speech today before buying with gusto once more.
Dow 30 Hourly Chart
Asian markets is a mixed bag today. Nikkei 225 has gained 0.55%, but Hang Seng is lower by 0.33% and Kospi is 0.59% lower. Hence it is unlikely that US Futures will be able to receive any guidance from Asian traders on where the overall sentiment is heading at least where risk appetite is concerned. Hence, technicals may have a slight edge right now. For Dow 30, there appears to be an Evening Star/Abandoned Baby pattern formed with the right bearish confirmation candle pushing below the Consolidation Ceiling. This is in line with a Stoch peak that is forming right now under the Overbought region. Even though this shouldn’t be considered a proper bearish cycle signal, but looking at higher price peaks but mostly flat stoch peaks, the divergence lends weight that a bearish move is possible from here.
S&P 500 Hourly Chart
The same could be said with regards to S&P 500, which is slightly more bearish due to the break of rising channel. Yesterday’s rally failed to break into the rising channel, and the resulting bearish rejection is fueling the move towards 1,671 support once again. Currently price is sitting just around the 1,676 resistance turned support, and a break of this level can result in a bearish acceleration lower.
Looking at Future prices, the fact that stocks have made advances for 9 out of 10 recent days cannot readily be seen from the price action. This is not really what we have in mind when someone tells us that price is hitting consecutive record highs and clocking in 8 days of consecutive gains. As such, continue to be prepared that there could be bearish surprises lying in wait moving forward.
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