Stock Market Shrugs Off Weaker than Expected German IP

The SP500 chart above shows a flush from the 2 am high at 1093.75 to 4.15 am low at 1086.25.. The early morning decline was the result of a weaker than expected German IP report for July. However, the SP500 rebounded to take out the 2 am high. In swing theory, this implies the decline from Sunday/Monday may be over. The July IP should have declined anyways given the strengthening Euro over the US dollar. One reason overnight weakness is being shrugged comes from ING economist Carsten Brzeski who observed Germany’s new orders are still strong: “Nobody expects the economy to power ahead at the same pace as in the first half of the year. At the same time, the order books are still full and China is not all of a sudden going to stop ordering machines” However, we have to note that the European investors were not so bold overnight so as to breach Tuesday 11 am high when the European markets closed yesterday. We also want to note that the rally back to Tuesday morning’s 11 am high at 1096.75 was the 50% retrace to Sunday/Monday’s high at 1107. While the above chart looks bullish based on the breach of the 2 am high and shift in intraday momentum from bear to bull, US investors are going to have to defend the bullish setup off the 1086 overnight low later this morning. A failure to defend the 1086-1090 area would be a signal of eroding investor confidence.

The SP500 chart above shows a flush from the 2 am high at 1093.75 to 4.15 am low at 1086.25.. The early morning decline was the result of a weaker than expected German IP report for July. However, the SP500 rebounded to take out the 2 am high. In swing theory, this implies the decline from Sunday/Monday may be over. The July IP should have declined anyways given the strengthening Euro over the US dollar. One reason overnight weakness is being shrugged comes from ING economist Carsten Brzeski who observed Germany’s new orders are still strong: “Nobody expects the economy to power ahead at the same pace as in the first half of the year. At the same time, the order books are still full and China is not all of a sudden going to stop ordering machines” However, we have to note that the European investors were not so bold overnight so as to breach Tuesday 11 am high when the European markets closed yesterday. We also want to note that the rally back to Tuesday morning’s 11 am high at 1096.75 was the 50% retrace to Sunday/Monday’s high at 1107. While the above chart looks bullish based on the breach of the 2 am high and shift in intraday momentum from bear to bull, US investors are going to have to defend the bullish setup off the 1086 overnight low later this morning. A failure to defend the 1086-1090 area would be a signal of eroding investor confidence.

While the 15 minute and 60 minute charts have flipped momentum from bearish to bullish overnight, there is still reason for investors to be cautious this morning. The 15 minute chart points to a 3 hour cycling from 415 am to 715 am. The next 90 minute cycles are due at 845 am and 1015 am. These are time windows to anticipate highs or lows. One must adopt an agnostic approach as to whether highs or lows are set in these time windows. However, I would like to point out that a morning low in the SP500 that breaches the overnight high also breaches the high set when the European markets closed yesterday. That would be a clear signal confidence is again recovering. It also helps investor confidence when today’s headlines also observe that Dividends Beating Bond Yields by Most in 15 Years. From Bloomberg: “Kraft Foods Inc.

and DuPont Co.

are among 68 companies in the Standard & Poor’s 500 Index with payouts that top the 3.80 percent average rate in credit markets.” This asset allocation consideration also explains in part why rallies in treasuries have been notably weakening in recent weeks.

Written by John Bougearel