There is never a good way to say “I told you so” without sounding pompous, but it is great to see how US market reacted as we expected – where bad news is actually good news for stocks. S&P/Case-Shiller Home Price Index came in lower than expected for both seasonally adjusted and non seasonally adjusted numbers. Consumer Confidence has also fallen from 81.8 to 79.7, which is lower than the expected 79.9, while Richmond Fed Manufacturing Index fell to a flat zero from previous month. All in all yesterday’s news was a red wash, with every single news releases worse than expected.
However, S&P 500 and Dow 30 actually traded higher when the news were released. The rally that happened during early US session was actually against the broad bearish momentum that spilled over from Asian and European session, hence it is clear that market was actually reacting bullishly to the bad news. This is not surprising as we’ve already expected market to be hyper-sensitized to bad news especially Housing and Employment numbers as a worse than expected print would mean Bernanke and his fellow Fed members would have more reason to not carry out a QE taper.
Nonetheless, there is something else we learnt yesterday – long term QE taper fear still trumps any short-term speculative bulls. This make sense as Fed will need to taper eventually, this sentiment is shared across market participants and officials, with Bank of Korea Governor Kim saying today that the issue is simply a “matter of timing”. What this means moving forward is that any short-term rally be it from bad news or from technical rebounds may find strong selling pressure as bears will regard this as an opportunity to enter into the long-term speculative game at a better price.
S&P 500 Hourly Chart
From a pure technical perspective, S&P 500 is staying within the trading range of 1,695 – 1,708. Currently it seems as though that price has rebounded off the consolidation floor with Stoch curve pointing higher. However, prices did not really test the floor, while Stoch curve is forming a trough above 20.0. Neither are deal breakers in terms of bullish signal and there are good reasons to believe that the bullish signal is legit – prices didn’t test 1,708 fully either, while stoch trough is at a level where previous troughs/peaks have been seen. But prices should ideally break 1,700 round figure before a move towards 1,708 can be contemplated. Failure to breach 1,700 will open up 1,695 as the immediate bearish target with more bearish targets to follow given the broad bearish sentiment.
Dow 30 Hourly Chart
Dow 30 remains much more bearish with yesterday’s sell-off able to breach the soft support level which S&P 500 couldn’t. Currently Stochastic readings are pointing higher, but that feels more like a temporary rebound off 20.0 and not a true bullish signal given that previous troughs are much more deeper than that. This can be confirmed should price fail to break 15,375, which will allow for some slight bearish extension in the short-run before a stronger bullish pullback comes into play. Support for Dow 30 is the 15,300 – 15,350 consolidation range, and given that S&P 500 is less bearish now, a break of 1,695 for S&P 500 increases the likelihood of Dow 30 breaching 15,300. Conversely, should Dow 30 push above 15,375 and hits 15,430, the odds of S&P 500 pushing beyond 1,708 increases.
Fundamentally, we have New Home Sales being released today. If the numbers are lower than expected, we could see yet another short-term rally. But if yesterday’s price action is of any guide, it is likely that short-term rallies will be sold and we may end up all square or perhaps marginally lower by the end of today.
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