US Stocks rose yesterday after a slew of good economic news. Jobless Claims fell by 24k to 334k in week of July 13th, lower than the expected 345k. Philadelphia Fed also rose to the highest in 2 years, coming in at 19.8 amidst expectations of 8.0, and much stronger than previous month’s 12.5. Bernanke helped the bulls further, reaffirming the Senate Banking Committee that it was “way too early” to tell when the QE tapering will start considering the “mixed results” in the economy- translation: We will not taper QE3 in 2013, but I’m not saying that outright to appease some of the Fed voting members that want to see some cutting happening this year.
With Bernanke’s tacit admission that QE3 will stay for the “foreseeable future”, market has not began to accept that good economic news are good things for the economy, and not the earlier “good news is bad news” mentality that was prevalent back in late June and early July. This would mean that any future rallies that comes will be better supported by fundamentals, which is important especially since we are hitting record high territories here.
Interestingly, US stocks did not really manage to hold onto the gains for long, with price actually pulling back after Bernanke concluded his testimony. Nonetheless, Dow 30 managed to clinch onto most part of the gains, closing 0.50% higher, while S&P 500 achieved identical gains, despite price action not exactly mirror images with Dow 30. However, the sell-off did not stop when the physical stock market closed. Prices continued to push lower for both S&P 500 and Dow 30 as we approached Asian open. Looking at Asian markets, Nikkei 225 has fallen by 1.12% after pushing higher slightly during early trade. Hang Seng Index basically ignored all the bullishness of US market, trading lower below yesterday’s closing levels within 5 mins of trading. With Japanese elections happening this Sunday which may impede future Abenomics implementation should Shinzo Abe’s party loses the House, market is already jittery to begin with. Hence this initial risk aversion move that is spilling over to US and European Stock Futures right now should not be neglected, and could derail current bullishness of US stocks.
From a technical perspective, price is still holding above the 15,475 resistance turned support. However, 15,500 round figure has been broken, which severely impairs the rally yesterday. With stochastic readings closing in on Oversold region, bulls will be relief to know that 15,475 will have a much better chance of holding on. A breach of 15,475 may result in quick acceleration back to 15,400 and potentially breaking it, but this scenario is unlikely unless Asian markets risk sentiment deteriorate even more drastically from here.
S&P 500 is more bearish compared to Dow 30 with a Channel Bearish rejection. However, the likelihood of 1,578 support holding may be higher considering that the uptrend from 11th July is still in play. Similar to Dow 30, Stoch readings are close to the Oversold region, which will add further strength to the aforementioned support level.
From a technical point of view, both indexes are bullish in the mid/long-term (see price recovery from June lows), as such, short-term pressure will also favor on the upside (more for S&P 500). Fundamentals are also favoring US stocks now, which puts price in a good position to withstand current Asian onslaught and put price in a good position for bullish recovery during US trading hours today.