Somebody described current US market as the “Walking Dead”, which is a very good description considering that price is still broadly rallying higher, but instead of roaring strongly, we are seeing bulls staggering slowly onwards. To be frank, this is a much better description than the “floppy” fish image that has been conjured yesterday, and a terrible miss at that, considering that this is the exact same description market watchers have been giving Japanese banks for the past 20 years.
Back to the markets, US endured a mixed day of trading. S&P 500 shrunk 0.19% while Dow 30 grew 0.14% higher. Neither figures are exciting, but the divergence between S&P 500 and Dow 30 is generating a potential bearish pullback signal according to Dow Theory. However, given that we’re currently traversing the earnings season, the slight difference in direction can be easily explained away by the volatility of individual component stocks arising from the earnings reports and not a true representation of broad market sentiment. Nonetheless, should this divergence continue to grow, it would not be difficult to imagine the stumbling zombie falling greatly after trying to move into dual direction at the same time – Translation: a potential strong bearish correction could be in stock in the near future.
S&P 500 Hourly Chart
From a technical perspective, S&P 500 is slightly bearish considering that the rally during US hours failed to break the incumbent Kumo’s top. Forward Kumo is showing a bearish twist, and price is also trading consistently below the descending trendline. The previous swing high of 18th Jul has also been broken, exposing the next level of soft support around 1,690 which happens to be the confluence with Senkou Span B. However, Stochastic readings are just above the 20.0 mark, and looking at previous troughs, it is possible that stoch readings may also stall around the same place, which would imply that a rebound at 1,690 may be possible. Should price manage to hold above 1,690 throughout Asian trade, we will be trading above the descending trendline by default during late European and early US trading session, which may allow a recovery towards Kumo bottom once again.
Dow 30 Hourly Chart
Dow 30 is more bullish with prices supported along the confluence of current Kumo’s top and rising trendline. Despite Stochastic readings pointing lower, there is a divergence seen between Price action and Stoch action, which leads to the impairment of current bearish cycle signal. Immediate bullish target would be the 15,580 ceiling, and potential bullish acceleration may take place should the ceiling get broken especially during early US trading session.
All in all, the “walking dead” market is not a good way for either S&P 500 and Dow 30 to hit their record highs. This suggest that the market is extremely hesitant about buying into rallies here, and suggest that any bad news in the future may trigger overreaction to the downside.
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