U.S. Stock Markets At New Highs

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During the last week both of the U.S. Main indices, S&P500 and DJIA, made their new and fresh highs. As a Reuters article suggests, the main reason for this was that “last week’s batch of U.S. data left investors less sure the Federal Reserve would start to scale back its stimulus next month.” The data in mind most probably includes the NFP, released on Friday, which significantly missed the consensus estimate (164K vs. 184K exp.). There were also decline in the U.S. average hourly earnings which all came out below their expected values. The positive value from Friday was the unemployment rate which showed a decline to 7.4% vs. 7.5% exp. and 7.6% previous. Earlier the week started with negative surprises on the U.S. pending home sales on Monday. On Wednesday we had the positive surprise of annualized U.S. GDP (preliminary) (1.7% vs. 1.2% exp.).

We will leave out the illogical (if regarded on the basis of sound economic principles) connection between a bad data and a rising stock market on the hopes of more FED stimulus, and focus on what the charts are showing. (Possibly helpful here would come our recent “Be humble. And take care of trading risks” article from our Education section.)

S&P500 (SPX) Monthly GraphSPX Monthly Graph

On the monthly one of SPX we have the market still in an upward mood with all the examined indicators (MAs, MACD, etc.) showing positive formations. This would mean that any decline of the market we could witness in near term, would be a temporary one.

S&P500 (SPX) Weekly GraphSPX Weekly Graph

On the smaller time frames however, there are some signs of exhaustion of the current uptrend. The weekly graph shows the SPX being relatively close to a top, with the Stochastic in the overbought zone. What could be a real warning sign there is the formation of a bearish MACD divergence between the value of the index and the tops of the indicator. This bearish divergence on the weekly graph has not still been formed but is something that should be checked again at a later point of time.

S&P500 (SPX) Daily GraphSPX Daily Graph 050813

On the daily graph SPX’s uptrend seems a bit too extended. The market is making a second high around the 1710 level which is higher than the previously formed one at 1699. Still, the MACD histogram is negative and the Stochastic shows the market as being overbought. We could still see some upward movement on the basis of hopes of stimulus but as the current week is short of FED’s officials appearances, any negative surprises in the economic data could have the opposite effect than the one it had on Friday last week. Of particular importance could be the ISM non-manufacturing PMI (53 exp. vs. 52.2 previous) released on Monday (14:00 GMT, 9am EST), the jobless claims on Thursday and the different treasuries auctions during the week. Negative surprises on those indicators could have the potential to turn the direction of the U.S. Stock market.

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