US stocks clocked in yet another losing day, not entirely surprising considering that we have had a long series of bullish gains prior to this. S&P 500 close 0.37% lower while Dow 30 fell by 0.24% on Monday. The common explanation for the decline was the slightly depressing US economic data that was released on Monday. However, if we look closely at the actual data, this explanation does not really stand well. We had a 2 major news from North America yesterday – Pending Home Sales and Dallas Fed Manufacturing Activities. The former was actually better than expected, growing 9.1% Y/Y in the month of Jun, while Dallas Fed came in at 4.4 vs 7.5 expected, which is also not a dismal print as it is still nicely positive considering the volatility of the index.
So what is the actual reason for the fall?
We saw big names losing yesterday – Microsoft, Hewlett-Packard, Chevron and ExxonMobil. It is possible that the decline in these big names dragged the broader risk-sentiment lower on a day which saw Asian Market trading extremely bearishly. However, there is some silver lining as most of the losses suffered yesterday was the result of a opening gap lower, with prices actually pushing higher during the latter part of the trading session. This suggest that price is generally stable for now, and the decline suffered yesterday may simply be a one-time revaluation due to broad anti-risk sentiment, rather than US stocks being bearish themselves. This is important as we enter into the final stretch of earnings seasons – stock prices still have the opportunity to rally higher if earnings are better than expected, and/or any high level economic news event surprise to the upside (e.g. ISM Manufacturing, FOMC Rate Decision).
Dow 30 Hourly Chart
This is important for technicals as well. Price is currently heading into the 15,550 resistance once more after breaking the descending trendline. With Stoch readings pointing higher and deep within the Oversold region, bulls will be glad to know that inherent sentiment of US stocks isn’t outright bearish. This puts price in a good position to retest 15,550 proper once more, and even in the event that a bearish rejection does occur at the resistance, the likelihood of prices holding above the descending trendline increases as well.
S&P 500 Hourly Chart
With regards to S&P 500, the likelihood of a trendline break increases especially given that Stoch readings is still yet within the Overbought region. A break of the descending trendline opens up 1,690 as the next level of bullish target. Similar to Dow 30, the ability to breach 1,690 based on this move alone is suspect, but the possibility of descending trendline turning into a support is higher given the non-bearish nature of US stocks.
Currently, with Nikkei 225 trading higher (potentially a corrective pullback) and other Asian Stocks marginally higher, there will be less bearish resistances against any further climb of US stocks. This further increases the likelihood of prices hitting their respective bullish targets in the next few trading session if not the upcoming one. However, it should be noted that Nikkei 225’s current bullish effort is far from negating the overall bearish pressure, especially when seen from the Monthly Chart. Therefore, we could still see a reversion of bearish sentiment across Asian Markets, which will jeopardize bulls ability to break through the aforementioned resistance, adding one more reason why a rebound back towards their respective descending trendline may be more likely in the near term.