After making the proclamation that US Stocks aren’t as bearish as you think, prices for both Dow 30 and S&P 500 Futures did trade higher, possibly dragged higher by the rebounding Nikkei 225. Risk appetite was certainly strong yesterday, sending European Stocks higher (DAX +0.15%, FTSE100 +0.16%, Stoxx50 +0.64%) on the back of stronger (or less negative to be exact) than expected Spanish GDP numbers together with better looking Euro-Zone confidence data. Hence it is no surprise to see US stocks gaping higher on open, with continued bullish pressure that sent S&P 500 to an early day high of 1,693 and Dow 30 almost hitting 15,600.
However, the rosy scenario did not last long, as price started to collapse quickly at 10am EDT, 30 mins after the opening bell. The catalyst for the decline – weaker than expected US Consumer Confidence, which came in at 80.3 vs an expected 81.3, and lower than previous month’s 82.1. If you think that this news may not be the worse economic data miss that you’ve seen in recent days, you would be right. A 1 full point miss is certainly not the end of the world, especially since we’ve just seen 3 consecutive months of over expectations, with an average of 6.1 points higher than the respective expected numbers. Furthermore, the previous time the index fell short of expectations, we missed the mark by 8.2 points. Hence, considering the degree of over/under expectations that we are used to seeing, a 1 point miss can actually be considered as meeting expectations due to the high volatility involved. Therefore, if market did use this news as bearish catalyst, it feels as though that the market is simply looking for excuses to sell into.
S&P 500 Hourly Chart
Dow 30 Hourly Chart
Looking from a technical perspective, the bearish motivations of the market makes sense. Prices were on its way down south after rebounding from the 1,690 -1,692 resistance. Technical bears would be seeking a move back towards the low 1,680s, and hence simply ride on the back of a the slightly bearish economic news release to sell further. From price action yesterday, we can see that the post Consumer Confidence decline was actually supported by the rising trendline, and actually bounced higher. It was the sell-off that happened during US midday which broke the rising trendline and the descending trendline, sparkling an accelerated bearish movement towards 1,680, which underlines the notion that it is technicals driving prices lower, which reconciles with the fundamental analysis observation that the Consumer Confidence is not that bearish to begin with.
What can we learn from this though? With US GDP and FOMC announcement coming later today, it is unlikely that we could see any strong movements from now till then. Hence it is likely that prices may continue to remain within the currently widening triangle. Also, it should be noted that both US indexes remained robust despite the technical sell-off, with S&P 500 actually gaining slightly (+0.04%) and Dow 30 negligibly lower at -0.01%. This continue to affirm the assertion made yesterday, that underlying bulls remain strong. This would mean that we could see stronger reactions if both news events turned out favorably, while negative even risks may be more supported at least in the context of today.
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