S&P 500 and Dow 30 – Yellen No Magic Bullish Bullet

Yesterday was a good day for US stocks, with S&P 500 and Dow 30 gaining 0.06% and 0.18% respectively. Once again, major newswires have put 2 and 2 together, automatically declaring that the slight gain in stocks are due to Obama’s nomination of Janet Yellen as the Fed’s next Chairperson. However, that may not be a good reflection of market sentiment – US stocks actually gaped lower on open, while Futures were trading sharply lower during European hours. Hence if Yellen’s nomination is viewed positively, it is at least not enough to counter the overall bearishness. This assertion became even weaker when we consider that stock prices actually trade lower when Yellen was officially nominated at 3pm EDT, suggesting that if anything Yellen’s impact on the market is actually negative.

S&P 500 Hourly Chart


Nonetheless, the fact of the matter is that US stock did rise, and that can be easily explained away if we interpret yesterday’s small rally as a technical rebound after the strongest 2-day slump in stocks since June. Looking at price action yesterday, there are strong signs that technical influences are in play. The rebound during US session was triggered by the the breach of 1,650 which triggered bids just under the key round figure, pushing prices strongly higher. However, resistance 1,662 is equally up to task, sending prices back lower once again when it was tagged.

Currently optimism/risk appetite in Asia is pushing prices higher, but overall bearish pressure remains. The failure for prices to test 1,662 more meaningfully after rebounding from 1,650 is a strong bearish indication, while Stochastic readings are tapering and we could see a turn around should prices stay under 1,660 soft resistance. Even if 1,660 is breached, it is likely that descending trendline and confluence with 1,662 level will add further bearish pressure, while Stochastic readings will most likely be within Oversold region or close to it, with a high likelihood of peaking given that past few stoch peaks were close to or under 80.0.

Dow 30 Hourly Chart


Interestingly, Dow 30 is actually slightly more bullish than S&P 500 this time round, but the prognosis is the same. Despite pushing above yesterday’s Asian/European highs, bearish pressure remains in the form of descending Channel Top. Stoch curve is also within the Oversold region now and seems to be reversing already, with a bearish cycle signal coming up very soon which will coincide with a holding of Channel Top holding.

Fundamentally, latest FOMC minutes tell us that nothing has changed. QE tapering is on the cards with “most participants” (FOMC voting members) maintaining that a full conclusion to the QE program in mid 2014 is “appropriate”. As such, it is unlikely that Yellen will be able to say “let there be continued QE” and extent the lifespan of current stimulus package even though she has been regarded as the ultra dove by many Fed watchers. Therefore, do not expect Yellen’s nomination to change QE sentiments and it is unlikely that we will see strong rallies coming out from now on especially with Debt Ceiling and Government Budget issues still raging on.

More Links:
GBP/USD – Falls Strongly back to Key 1.5950 Level
AUD/USD – Remains very quiet above 0.94
EUR/USD – Touches One Week Low below 1.35

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