Modest gains all round for US stocks indexes yesterday. Dow 30 came in at a paltry gain of 0.01% while S&P 500 came in better at +0.20%. The relatively flatness of yesterday’s market is a result of stronger financial sector and declines from the energy markets. With earning season currently ongoing, market continues to remain jittery and non-committal with regards to any long-term directional play, but instead stayed neutral since the start of the earnings season, with bullish bumps along the way thanks to Ben Bernanke’s dovish speech on 3 separate occasions.
This slight bullish momentum allowed US stocks to clock in yet another day of gains, with the latest run now at 4 consecutive days. This of course pale in comparison to the recent 8 day streak, with 1 day of red in between the previous and current consecutive run, giving us a 12 out of 13 days of gains – a good record by any standard. However, out of these 12 days of gains, we did not see strong bullish momentum in most of them, with prices seemingly more interested to flop around lethargically most of the days.
Hence this leads us into a conundrum – is market truly bullish? There appears to be continued fears of QE tapering in the market despite Bernanke saying that QE will continue in the “foreseeable future”. Latest surveys of economists showed that a greater proportion of analysts, now reaching 50%, believe that Fed will start to taper in September. This explains away a huge part why bulls haven’t been able to get any strong headway recently, and also imply that fireworks are installed to be set off in September FOMC meeting. Should there be no taper event, it is likely that the current pent up bullish pressure may explode higher quickly, while a QE taper event will almost result in a quick sell-off of stocks as risk aversion will grip the market. In between now and then, we could potentially see more of the floppy action in stocks once again. There may be gains, but it would be more of the <0.50% variety rather than the 1% – 2% strong daily gains that characterizes record bull rounds (we’re in one now btw, even though price action does not realize).
S&P 500 Hourly Chart
Looking at Futures prices, yesterday’s gains are hard to spot considering that prices failed to reach the highs of last Friday, and we are mostly trading below the 1,696 resistance. Even though bullish momentum is still in play, stochastic readings are currently within the Overbought region, and given the lethargic nature of price action, it is not hard to imagine price trading lower towards the previous swing high of 18th July. However, a full bearish reversal is also unlikely though, given the mild bullish nature that is in play currently. As such, the swing high around 1,692 is likely to hold unless strong risk aversion sentiment picks up – something that could be catalyzed by dismal earnings of big blue chip firms.
Dow 30 Hourly Chart
Dow 30 chart looks similar, but with its on distinct features. Stochastic readings have yet to hit Overbought, with current readings suggesting that the bull cycle is currently underway in search of the previous swing high on 18th Jul. However, looking at the interim stoch peak around 50.0 yesterday, we can see a clear divergence where price managed to hit above 15,550 and more but current price remains firmly below the 15,550 mark. This slight divergence impairs bulls ability to test the ceiling, and suggest that a move towards the rising trendline could be possible even when the bullish momentum is still ongoing.