S&P 500 and Dow 30 – US Bullish But Asia and Europe Traders Drag Stocks Lower

Yesterday is yet another “one of those days” where absolute price changes on physical stocks do not reflect the true reality of the situation. Case in point, S&P 500 shed 0.07% yesterday, while Dow 30 dipped 0.39% lower. Given the US partial Governmental shutdown, hack writers can simply put 2 and 2 together and write something along the lines of “Stocks Lower As Market Feels Shutdown Pinch” and call it a job well done. However, if we take a look at proper price action during the US session, you would notice that majority of the stock prices actually closed higher than they opened. This tells us that US market is actually bullish, and that the decline chalked in yesterday is actually the result of risk aversion behaviors from Asian and European traders based on Futures prices.

Ironically, the reason why US traders were bullish yesterday may not be all that cheery. ADP Employment Change came in at 166K, falling short of the 180K expectations and could have been the bullish driver as speculators were delighted with a worse than expected news in hope that Bernanke would hold off QE tapering until 2014. However, this tried and tested assertion seems dubious this time round as the immediate reaction towards the miss was actually bearish, suggesting that the “good news is bad, bad news is good” mentality may not be holding true currently.

Given that the rally during US session is less than clear, it is not surprising to see a lack of bullish follow-through. S&P 500 and Dow 30 both faltered at key resistances, with Asian session currently pushing prices sharply lower in continuation to what it began yesterday. Moving forward, the key question is whether European markets will still be bearish today and whether US market will be able to pick up the broken bearish pieces once more today.

S&P 500 Hourly Chart


From a technical perspective, how this may potentially play out for S&P 500 could be price continuing to push towards 1,673 – 1,678 from now till European session, with US session allowing price to rebound higher but ultimately failing to breach the soft 1,687 resistance. Stochastic agrees as well, with readings still in the midst of a bearish cycle but we’re currently close to the Oversold region. Hence it will not be surprising to see price eventually rebounding.

Dow 30 Hourly Chart


Dow 30 continues to be much more bearish compared to S&P 500, with prices continuing to break new lows. Nonetheless, Stoch readings also suggest that a bullish pullback may be coming soon as we approach the 15,000 significant support.

Given the strong bearishness seen in Dow 30, should prices managed to climb above 15,060 and preferably above 15,100, the odds of S&P 500 pushing above 1,692 increases (if prices have yet reach there). Similarly, should S&P 500 breaks the 1,673 support, we could potentially see Dow 30 accelerate lower even faster, with 14,750 – 14,930 consolidation providing support.

More Links:
AUD/USD – Continues to struggle at Resistance at 0.94
EUR/USD – Moves to highest since February above Resistance at 1.3550
Ten Factors Affecting FX, Equities and Bonds-Oct 2nd

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Mingze Wu

Mingze Wu

Currency Analyst at Market Pulse
Based in Singapore, Mingze Wu focuses on trading strategies and technical and fundamental analysis of major currency pairs. He has extensive trading experience across different asset classes and is well-versed in global market fundamentals. In addition to contributing articles to MarketPulseFX, Mingze centers on forex and macro-economic trends impacting the Asia Pacific region.
Mingze Wu