US stocks traded lower yesterday, which is not surprising as the risk of bearish pullback was high given that 1,850 resistance held compiled with the fact that the rally on Monday was inexplicable and is driven without fundamentals support. Furthermore, market was broadly bearish during Asian and European hours. Even though US Stocks Futures remained flat or mildly bearish at worse, the downside risks were always there. Hence, seeing S&P 500 trading 0.13% lower, Dow Jones Industrial Average 0.17% lower and Nasdaq 100 at -0.18% can be considered par for yesterday's course.
Hourly Chart
That doesn't mean that prices stayed flat throughout yesterday though. In fact, hourly chart tells us that we've seen sharp gains and losses during US trading session yesterday, and that Stocks did not close lower because of the bearish pullback explained above.
Firstly, let us take a look at early US action where prices dipped sharply below the 1,845 support level within the first hour when the stock exchanges were opened. This decline coincide with the release the S&P/Case-Shiller House Price Index which came in stronger than expected on both M/M, Q/Q and Y/Y measures. On the other hand, the rebound off rising trendline at 10am EST (11pm on chart) matches the release of a weaker than expected Consumer Confidence print and a surprise dip in Richmond Fed Manufacturing Index which came in at -6 vs the median forecast of 5 and 12 previous. Given such contrarian response to good/bad economic numbers, the market may once again speculating on the Fed tapering outcome in the next FOMC meeting.
It is unlikely that such mindset is not a major force in the market right now as this speculative game has started way back since 2013 May. With the Fed clearly already in a tapering phase, there is very little reason to speculate that Yellen will suddenly change the pace of taper after her testimony to House of Representative earlier this month explicitly saying that she would not. Of course, Yellen's words left some space for contingency, with the new Fed Chairman assuring the House that the Fed will keep monitoring the markets and consider changing pace should US economy recovery changes significantly. This should not be regarded as carte blanche for traders to think that any minor bearish economic print will make Yellen change her mind especially if a much lower than expected NFP print failed to do that. Hence, this speculative play hoping that Yellen will stop tapering in the short-term is doomed to fail, and it is highly unlikely that directional trends will be able to develop based on this.
There are already some evidence in yesterday's price movement - 1,850 resistance held strongly despite the rally post Consumer Confidence number, pushing price back down and giving S&P 500 the 0.13% loss. Hence, we can verify that this "fundamental driver" is weak especially when bulls managed to do so on Monday without any stimulant. As such, it is likely that any market plays based on stimulus speculation may only be providing volatility and unlikely to change directional movement if they can't even break any technical levels.
Speaking of technical levels, it is worth noting that prices have since rebounded higher off the aforementioned rising trendline during early Asian hours and is currently testing 1,850 once more. Once again there isn't any strong bullish economic news releases, and neither is risk trends broadly bullish right now. Hence, even if 1,850 is broken right now, follow-through will be suspect and we could see a repeat of Monday all over again.