US market clocked in a bearish day with S&P 500 closing 6.45 points (0.4%) lower while Dow 30 fell 25.50 points (0.2%). This decline occurred despite a much stronger than expected US New Homes Sales growth, which came in at 8.3% vs the 1.7% expected. Markit US PMI Preliminary also came in stronger than expected, standing at 53.2 vs an expected 52.6. Stock prices did reversed early morning losses slightly, but the gains were nowhere near to break yesterday’s closing levels, resulting in renewed bearish pressure lower which was only alleviated towards the end of the trading session.
Reasons for the broad bearish sentiment is unclear, especially given the fact that earning reports were more good than bad. The big news yesterday was Facebook, whose share price rose 20% on a 53% gain in revenue. However, even the Nasdaq 100 index, of which Facebook is part of, only gained 0.32% with price action mostly downwards during the trading session. The gains were only made by virtue of the large opening gap higher, which underlines current bearish sentiment even further, as bulls were simply not able to hold onto their gains and/or simply overstretched.
What this imply is that we may be seeing declines in US stocks in the near term. The divergence seen between S&P 500 and Dow 30 on Tuesday was an early sign that a significant pullback is coming. Yesterday’s decline is an indication that market is feeling bearish. All we need is a strong sell-off to spark a new mid/long-term cycle of bearishness for Q3 2013.
S&P 500 Hourly Chart
From a technical perspective, price is now trading below the Senkou Span B of yesterday’s Kumo around 1,689. Support has also been found around 1,681.5 which is the ceiling and support of 18th July and 19th July respectively. Stochastic readings are currently pointing lower, suggesting that price may be heading towards 1,681.5 once more. However given the fact that readings are close to Oversold region, coupled with the fact that current bearish cycle did not start firmly from an Overbought setup, it is hard to label current bearish momentum as strong and the likelihood of 1,681.5 holding increases. On the other hand, as Stoch readings has just recently rebounded from the Oversold region which coincide with the holding of 1,681.5 support, there is a likelihood that the decline seen during Asian hours can be interpreted as a short-term pullback within a broader bullish momentum towards 1,689.
Dow 30 Hourly Chart
Dow 30 is slightly more bearish with the break of the rising trendline and Kumo breakout together with bearish Kumo twist weighing. The late US session rally failed to break back into the Kumo, with Kijuu Sen providing additional resistance. Stochastic readings are also pointing lower, but unlike S&P 500, current readings appear to be in a continued broader bearish cycle that started back in 23rd July. This opens up 15,490 – 15,500 support as the immediate bearish target.