US stocks came down slightly yesterday, with S&P 500 closing 0.18% lower and Dow 30 shedding 0.26%. Looking at Futures, the decline appears to have started during the European session but the main bulk of yesterday’s sell-off only came in during US session, with both indexes breaking their respective support levels. It would be easy to simply regard yesterday’s bearish move as a technical pullback, but there may be more to it as risk sentiment remained positive yesterday. Looking at the news events calendar, we found our smoking gun fairly quickly – stronger than expected economic news.
As mentioned yesterday, better than expected economic data moving will have a bearish impact on stocks moving forward as this will provide Bernanke the “solid evidence” for a US recovery narrative. This “Good is Bad and Bad is Good” behavior is not new, and was actually in play during most of Q2 and a large part of Q3 until the tapering event became much more certain. With Bernanke once again throwing the Tapering certainty out of the window, it is likely that market will become hypersensitive towards good data especially those relating to Housing and Employment. Hence, it is by no means a coincidence that US session broke key short-term support level with both Initial Jobless Claims and Continuing Claims coming in better than expected. On the Housing front, Existing Home Sales grew by 1.7% vs an expected fall of 2.6%, adding more bearish fuel as speculators see these as signs that Bernanke will be more firm with a taper cut in October.
S&P 500 Hourly Chart
From a pure technical perspective, S&P 500 trading below the 1,725 level opens up the rising trendline below as a plausible bearish target. Immediate short-term pressure is down with early Asian session unable to test the 1,725 level significantly not the mention breaking it. If European session sends prices below the recent swing low, we could see further bearish acceleration lower. However, given that Stochastic levels are close to Oversold, it is unlikely that a pullback will be able to breach the 1,710 support especially given Friday’s typical thin trade.
Dow 30 Hourly Chart
It is the same with Dow, with the immediate bearish target of 15,570. Dow 30 is reclaiming back its role of the more bearish twin, as evident via the fact that the broken 15,660 support wasn’t even tested. Currently price is attempting to break the swing low of US session, and is primed to push lower before S&P 500 makes its move.
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