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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 04 September 2014 at 12:00 GMT

US Stocks: Waiting for the miracle

Trader / TheSteadyTrader.com
United States
  • Wednesday's trading underscored areas of concern
  • Weak US tech sector mainly due to Apple downgrade
  • Facebook still a bellwether for US markets

By Serge Berger

Only two trading days into September and we have already seen plenty of trading action below the surface, although one wouldn't know it by looking at the equity indices. The Dow Jones Industrial Average, the S&P 500 and the Russell 2000 are mostly flat so far this week but Wednesday's daily charts showed some troubling weakness. 

Today, all eyes will be focused on the European Central Bank's interest rate decision and from where I sit, it's anybody's guess how stocks would react to further dovish measures. On the one hand, stocks have risen plenty off their August lows and into this announcement. On the other, however, the past five years have seen any dovish statements bought.

Doves sought
In terms of today's European Central Bank decision, markets
are looking for fewer hawks and more doves. Photo: iStock


Tomorrow, we get the US August jobs report to finish off the week. The trading approach I outlined on Tuesday, i.e. opportunistically trading as opposed to piling into major long or short positions, remains my favoured strategy in the near-term as we try to find some sort of a rhythm for the broader market in the autumn months. 

To some extent, Tuesday's price action for US equities was the flip side of Monday's as small caps represented by the Russell 2000 and financials underperformed. The tech sector (as represented by the Nasdaq 100 or the S&P 500 technology sector) was the weakest link on the day, but that can mostly be attributed to lousy Apple action on the back of an analyst downgrade.

In the bigger picture thus far, Wednesday's marginal risk-off trade may just have been some profit-taking ahead of the aforementioned two events. We shall see how markets want to react to the ECB and the jobs report and whether that sets up a more directional trend.

Though only off by about 60 basis points on Wednesday,The Russell 2000 marked its daily chart with a so-called outside (or bearish engulfing) day where the price action fully engulfed Tuesday's. From a technical analysis 101 perspective, this is bearish and thus bears monitoring. Depending on how markets want to react to the ECB and the jobs report, continuation selling would take the index down toward 1,150 rather quickly. Alternatively, a break back above Wednesday's intraday high around 1,185 would call for a move back toward the July highs.
 
Russell 2000
Source: Saxo Bank

Thanks to August's rally, the all-important tell by the banks has put the KBW Banking Index chart back into a positive posture. Note that the higher low from August is now pushing the index against its diagonal resistance line from the March highs. Chances now favour a break past resistance sooner rather than later. This would also be a positive for the broader market but again, we must see how stocks react to the two events today and tomorrow.

KBW Bank Index
Source: eSignal.com

On the single stock front, Facebook had a nice breakout move Tuesday, which is the move I was looking for in my (still-valid) trade idea from last week. If the risk-on rally in the broader market continues, then stocks like Facebook should also be able to rise further. On the flip side, keep an eye on Facebook for clues as to the strength of any rally in the broader market.
     
Facebook
Source: eSignal.com

-- Edited by Michael McKenna

Serge Berger is a specialist in swing trading/trend following
5y
fxtime fxtime
Agree there seems to be long term traders selling/covering into market strength as opposed to buying on the dips imho. Apple and Facebook have huge weightings in the indices so the warnings of a pullback are there....NFP will be a crux day for sentiment and thus market direction.
5y
Serge Berger Serge Berger
...just wondering if we could get a real pop and drop today...
5y
Serge Berger Serge Berger
full disclosure, I am coming into today net-long equities
5y
fxtime fxtime
Selling into mkt strength again. Opening bell allowed initial relief rally on ADP being within consensus with a slight err to the downside which was enough for trades to be covered.....now what we all need to know is will the dip be bought or will the mkt fall to the point of control? 1989 must hold for the bulls imho.
5y
danevagirl danevagirl
This comment has been redacted

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