US Stocks: Waiting for the miracle
- Wednesday's trading underscored areas of concern
- Weak US tech sector mainly due to Apple downgrade
- Facebook still a bellwether for US markets
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.
are looking for fewer hawks and more doves. Photo: iStock
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.
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.
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.