For the past few days, US stocks have been trading higher despite no significant economic news fueling the rally. Yesterday was the opposite – with key employment indicators: Initial Jobless Claims and Continuing Claims numbers both came in better then expected. However, Stock prices actually ended lower, with S&P 500 closing 0.34% lower. Dow 30, the new bullish twin, traded in the red zone as well, but the damage done was exactly half of S&P 500 at -0.17%. The reason for the decline is not exactly clear, especially since the often used excuse of blaming Fed tapering fears does not fly this time round with 10Y benchmark yields actually hitting fresh weekly highs during early US session. If the market was pricing in a higher likelihood of a Fed tapering action in September, we should be seeing yields increasing and not decreasing.
S&P 500 Hourly Chart
The only plausible explanation would be that the bullish sentiment that allowed S&P 500 to clock in 7 consecutive daily gains have suddenly disappeared. This is not entirely surprising as daily gains in S&P 500 has been reducing for the past few days, hinting that the sentiment was already getting weaker. Yesterday’s decrease was also not really significant, with Future prices staying mostly above the ceiling of 11th September. Ironically, prices actually rebounded during Asian hours, whose traders were noted to be more bearish compared to the US counterparts. It seems that we are in bizarro world now where all the roles have reversed. The question now is whether US bearish sentiment will snowball in the next few days to send us back to the 1,650+ levels.
From a technical perspective, the key determining level would be the 1,680 – 1,684 consolidation zone of 11th Sept. Breaking the supporting zone will potentially result in acceleration towards the downside which answers the question raised earlier. If today’s US session reverse yesterday’s losses, the overall bullish sentiment will remain intact and put us in a good position for further gains before FOMC decision on Wednesday (Thursday 2:00am SGT).
Dow 30 Hourly Chart
Yesterday we raised the high downside risk for Dow 30 should bullish sentiment evaporates. However, in this regard Dow 30 managed to hold itself rather well but forming a consolidation zone using yesterday’s price levels. This suggest that overall bullish sentiment may still be there despite yesterday’s minor setback. That being said, if 15,300 level is broken, the bearish fears may materialize with 15,000 as ultimate bearish target and 15,150 – 15,200 as interim support.
Today’s Advance Retail Sales may give us further indication of the underlying sentiment. If bearish sentiment continues to take hold, it is likely that there may be a bearish overreaction should Retail Sales number disappoints. Should the numbers beat expectations, the overall bearish sentiment may be able to bring prices back down following mild bullish push. The opposite would be true if bullish sentiment is still in play.
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