US stocks traded lower across the board with S&P 500 losing 0.89%, Dow -1.07% and Nasdaq 100 -0.38%. This decline was expected as US traders have been observed to be much more bearish than the rest of the global counterparts, but the magnitude of the decline was certainly unexpected as price managed to cut through 1,830 support like butter, hitting a low of 1,818 before reversing back higher.
Certainly yesterday’s decline was fuelled by worse than expected data during the period of sharp decline – Markit US PMI Prelim came in at 0.16 vs 0.9 expected, and a far cry from previous month’s 0.69. House Price Index also came in lower at 0.1% vs 0.4% expected and 0.5% previous, while Leading Indicators stood at 0.1% vs 0.2% expected. The only bullish news was Initial Jobless Claims which came in at 326K versus 330K expected, but that is still 1k more than previous, while Continuing Claims was 71K worse than expected. All these minor news added up to paint an overall bearish picture, and it is no surprise that the already bearish US traders reacted more violently on these news.
Despite this sharp decline, it should be noted that yesterday’s assertion that this does not constitute a long-term bearish reversal. Prices have failed to hit the lows of last Monday – when the sudden slide happened, and once again Asian traders are proving to be relatively more bullish with price heading towards 1,830 resistance despite risk appetite being mostly bearish across all Asian indexes. Therefore, it seems that bearishness is still limited to within US, and that is not the formula needed for long-term bearish push. Furthermore, given that Friday has a tendency for price to pullback (due to profit taking, lower volume traded), we could actually see US traders behaving less bearishly today.
That being said, should Asian and European session fail to push price above 1,830, there is a risk that technical pressure may fuel further bearish endeavours during US session as this would be a confirmation of the break of the earlier 1,830 break, opening up a push towards 1,818 and potentially below for a bearish extension in the short term.
Long-term chart is still mostly bullish though, as price will still be able to find support via the confluence of Channel Top and ceiling seen between November and December 2013. However, should price break below that confluence point, we could see significant acceleration towards 1,770 especially if this move coincide with Stochastic curve below 50.0 level acting as confirmation. This would also be the most significant bearish pullback that we would have seen since the onset of current rally all the way from Nov 2013 as prices would have hit the previous low, and would negate a large portion of current bullish pressure. Should this indeed happen, it is possible that market sentiment may finally switch into a full bearish one, and set the tone for 2014.
On the other hand, should Channel Top holds, then normal bullish service will resume and a push towards 1,850 will be made possible once more and traders waiting for the huge correction will need to wait longer once again.