US Stock Indexes rose yesterday, with S&P 500 gaining 0.57% and Dow 30 0.77%. However, the same bullishness is not shared with the Nasdaq 100 index, which fell 0.30% by the end of yesterday’s close. The gains of yesterday can be attributed to the withdrawal by Lawrence Summers for the running of the Fed Chairman contention , which drove risk appetite broadly higher. The decline on the other hand, appears to be Tech based. Apple Inc closed 3.18% lower, making it the biggest loser amongst the S&P 500 components. Facebook did worse, losing 4.06% D/D. S&P 500 was able to absorb Apple losses and remained in the black, but Nasdaq had both losers, pulling the mostly Tech based Index into the read zone.
Two things we can learn from yesterday’s divergence. 1) Rest of S&P 500 which are broad economic based are showing strong enough gains to withstand the decline in Techs. 2) Tech losers tend to have higher betas, and hence what we are seeing could be an early warning sign that the previous market bullishness is U-turning. Looking at how yesterday’s “rally” turned out, it seems that point (2) may be more applicable. Futures prices indicate to us that US session was totally not bullish, with prices trading lower continuously after the US stock exchanges opened. A close inspection tells us that this bearishness actually permeates throughout the Asian and European session, with prices unable to push higher beyond Monday’s high. Hence, it seems that the Summers fiasco only contributed to a one-time adjustment, and did not contribute any furtherance of bullish momentum.
There are good reasons to think that the market sentiment is bearish. With QE tapering expected to happen on Wednesday (Thurs 2.00am SGT), market is understandably jittery and bearish. Yesterday’s stronger than expected US Manufacturing Production numbers further anchored the belief that Fed will indeed carry out a tapering action in the upcoming FOMC meeting, causing stock prices to accelerate down further.
S&P 500 Hourly Chart
From a technical perspective, current decline may find some support via Channel Bottom which is also around the highs of last week. Stochastic readings also suggest that we are Oversold currently, adding strength to the Channel Bottom support for a potential move back higher. However it should be noted that US traders are currently more bearish compared to their global counterparts , and as we are currently heading towards Channel Bottom during Asian/European hours, there is a chance that bearish momentum may continue after the rebound/holding of Channel Bottom has occurred. Bottom line is: do not take anything for granted; tagging the Channel Bottom does not necessary mean that price must move up higher especially since we have a huge event risk coming in on Wed.
Dow 30 Hourly Chart
Dow 30 remains the more bullish of the 2, but the technical interpretation remains the same as S&P 500. Do not automatically assume that price will be able to to hit yesterday’s high after tagging the rising trendline even though the distance is smaller compared to S&P 500. Should Rising Trendline is broken, next level of support will be last Friday’s closing levels around 15,390. Further support can be found around 15,300 which would be the consolidation zone on 12th and 13th Sep.
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