US Stocks climbed higher yesterday, with S&P 500 gaining a tremendous 0.96%, Dow Jones Industrial Average did even better at 1.13%. The gains can be attributed to factors both internal and external to US. On the internal front, Industrial Production climbed higher than expected, growing 0.6% vs 0.2% expected, while Manufacturing Production and Capacity Utilization rates are both better than analysts forecast. It is not all rosy though, as Empire Manufacturing came in 5.61 vs 6.50 expected, but nonetheless above the numbers seen in Feb. The same could be said for NAHB Housing Market Index which stood at 47 vs the expected 50 but was slightly better than the 46 of February.
However, positive external factors more than made up for it. Russia did not annex Crimea immediately after the referendum, but instead choosing to recognize the region as a sovereign independent nation. This is not unexpected as the same political manoeuvre was done back in 2008 with regards to the Georgia/Ossetia struggle. But market was relief nonetheless as the threat of US and EU economic sanctions was specifically aimed at preventing Russia from annexing Crimea, and without doing so the threat has been pegged back one step. As a result of which, market was broadly bullish with Russian stocks jumping 3.7% higher.
It is also clear that the bullish sentiment yesterday was broadly driven by the non-aggressive action taken by Russia. Case in point, Crude Oil and Natural Gas prices fell yesterday, which showed that the impact of no war was actually stronger than the “risk on” sentiment driven by better than expected US economic data. This is an important observation, especially since S&P 500 prices remained below 1,860 soft resistance which suggest that downtrend from last week remains firmly in play. Stochastic readings concurs with Stoch and Signal lines both below the 80.0 level – indicating the a bearish cycle is currently in play. If the charge that prices are more driven by the Crimean outcome rather than actual US economic fundamentals (which is not exactly stellar either), the risk of yesterday rally being just a corrective pullback cannot be ignored. This risk becomes even higher when we remember that Russia may still yet annex Crimea eventually, which will trigger broad economic sanctions and bring down asset prices across the globe.
Daily Chart is much more bullish though as trading above 1,850 once again suggest that the long-term bullish momentum is still in play. This assertion is even stronger when we consider that a Morning Star bullish reversal pattern is seen with the “star” within the consolidation region found in Jan 2014. Also, Stochastic curve is converging towards Signal Line, suggesting that a reversal may be occurring soon which favors a bullish push towards 1,890 and potentially beyond if the Bullish Cycle is confirmed.
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