Wall Street was extremely bullish yesterday, with NASDAQ 100 gaining 1.17%, closing at the highest in 13 years. Traditional stock indices S&P 500 and Dow 30 were not far behind, climbing 1.00% and 0.94% respectively. Many market watchers attributed the rally to the better than expected Chinese trade data, but that is not a good explanation considering that Futures did not really push up higher during Asian hours yesterday. Considering that there wasn’t any major US economic data release, we are forced to seek alternative explanations, and the only one that is left is that we’re one step further away from a US-Syria conflict, as US President Obama conceded that he is not confident that Congress will approve. A lack of war is definitely good for business, unless you are a warmonger that is, and that drove most stocks higher. However, yesterday’s rally would be considered generous for this news alone, as stock market didn’t really collapse when Obama received support from key Republican leaders and the Senate Foreign Relations Committee one week ago. Hence there is definitely an element of bullish overreaction which could be the culmination of bullish sentiment both from the China economic data and the lower possibility of war.
S&P 500 Hourly Chart
The above assertion makes further sense when we consider the technical aspect of things – namely the fact that prices managed to break last Friday’s swing high following Obama’s series of television interviews, adding breakout bullish pressure and allowing price to trade much higher. Moving forward, the most important question would be whether current bullish momentum will be able to continue sending us higher or falter and bring us back down to 1,664 support once again. Stochastic readings show that we are heavily Overbought currently, and a bearish move towards 1,664 and perhaps 1,650 may be possible especially if a Stoch bearish signal forms coincide with a 1,664 support break.
That being said, we need be wary of the bullish overreaction that occurred yesterday. As the overreaction occurred only during US session, there could be a chance that Asian/European traders may not share in the bullish sentiment (e.g. now) and result in a small dip in prices, only to see strong bullish US traders coming back in full force yet again. Hence further confirmation is certainly needed, and it would be preferable to see dips during US session in order to ascertain that yesterday’s bullish pressure is over.
Dow 30 Hourly Chart
Interestingly, Dow 30 is actually turning out to be slightly more bullish than S&P 500 now after living under its shadow for the past weeks/months. It is also here that we can see a better proof of US overreaction – there wasn’t any news announcement during US opening hours, and suggest that the push above 15,000 key resistance was purely non-fundamentally driven. Prices dithered slightly above 15,000 until Obama TV appearance fueled the already bullish sentiment higher, leading to where we are currently. Similar to S&P 500, downside potential of Dow 30 is there, but be careful of shallow dips during Asian hours as the main bulk of bullish reaction remains firmly within US session.
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