US Market took a bullish reversal yesterday, a strange turn of events considering that Asian Markets and European Markets were both bearish. However, S&P 500 and Dow 30 clocked in positive gains, closing 0.26% and 0.09% higher respectively. The gains in these 2 indexes can be attributed to the bullish spillover from Nasdaq 100, which grew a respectable 0.67% thanks to Facebook stocks which grew close to 30% yesterday as an extension to Wednesday’s earnings surprise. In fact, there were notable declines in big name stocks yesterday – Caterpillar Inc, component of Dow 30, went down 2%. General Motors, S&P 500 component, fell lower as well despite reporting higher than expected earnings. Both indexes opened lower, but traded steadily higher throughout the day, which is a much better proposition compared to the rallies seen in early week, which saw prices gaping higher but falling steadily lower. This suggest that underlying sentiment remains bullish, which will provide good support for any short-term dips.
However, questions remain whether the Facebook bullish impact will be able to last the mile throughout the entire earnings seasons, buffering the indexes from any weak earnings report, a reverse Apple Inc if you will, where the sharp fall in Apple stocks catalyzing falls in the broad market following the 2012 Q3 earning miss. The resulting bearish sentiment lasted for 1+ week, before risk sentiment set back in again. There may be a good way to determine if the bullish sentiment is still there. Currently Asian markets are in the red, with Nikkei’s -1.82% loss leading the way. Should European stocks follow suit, US stocks will be heavily submerged in a whirlpool of bearishness before open. Hence, if stocks manage to climb higher without another Facebook shocker, we could determine that market bias remains upwards. This would also negate the bearish divergence sign seen on Monday. On the other hand, if there were a similar major name that report crazy growth (e.g. 50% revenue growth) and yet broad sentiments remain weak, it may suggest that market may be moving back to be in line with global risk trends, which in this case is currently pointing lower unfortunately.
Dow 30 Hourly Chart
From a technical perspective, yesterday’s rally is facing strong overhead resistances. 15,550 round number has been providing support back on 23rd-24th July, which happens to be the Senkou Span B level back on 25th July and just slightly above current Senkou Span B levels. Stochastic readings are also suggesting that short-term bullish momentum is overstretched, making it likely for price to head lower towards the wide forward Kum around 15,500 – 15,530. Should price break the 15,550 level, 15,600 opens up and the decline of Wednesday will be invalidated, putting price back into the bullish track. Failure to do so will allow Wed’s decline to be still in play, and 15,450 will be the ultimate bearish target for now, with a break today opening up the possibility for even stronger bearish winds on Monday.
S&P 500 Hourly Chart
The same applies for S&P 500. It is good to see both stocks indexes moving back in tandem once again after the divergence seen on Monday. However, this would also mean that the divergence bearish signal would be correct, which means that current technical trend should be down according to Dow Theory. This increases the importance of breaking the immediate resistances for both Dow 30 and S&P 500.