Bounce Fades in Stocks as Market Awaits Inflation-Data

It was a hectic but mixed day for US stocks, as although the major indices opened lower with the technical breakdown in Europe weighing heavily on sentiment on Wall Street. Stocks quickly recovered their early losses, but the bounce failed to turn into a full-fledged rally, and although the recently struggling Nasdaq ended the day in the green, the Dow and the S&P 500 lost ground.

S&P 500 Futures, 4-Hour Chart Analysis

The resignation of UN-ambassador Nikki Haley caused some turmoil near midday, while the slight bounce in Treasuries, particularly on the long-end of the curve helped to calm the most volatile US market in 3-month.

Participation in the oversold rally was weak, but some of the market leading tech giants, such as Apple and Microsoft pulled their weight, while the recently shining financials and industrials closed broadly in the red amid the clear rotation between the sectors.

VIX (Volatility Index), 4-Hour Chart Analysis

The Volatility Index (VIX), which closed above 16 for the first time since early-July is certainly reflecting a shift in market dynamics, although the upcoming US midterms are also likely contributing to the rise in the risk measure.

Russell 2000, 4-Hour Chart Analysis

The Russell 2000 is testing its 200-day moving average following almost a month of relative weakness in small-caps, and that could be the sign of deeper troubles for the US stock market in the coming weeks. That said, a short-term bounce is in the cards in the coming days (which we wouldn’t get too excited about), with the Dollar pulling back from its 10-week highs, the S&P 500 bouncing off key support today, and with the relatively weaker global indices undercutting their August lows.

Dollar Dips Ahead of PPI

Dollar Index, 4-Hour Chart Analysis

As we mentioned earlier, the Greenback experienced a sizeable intraday reversal following a weakening momentum in European trading, and after the strong post-Fed rally, a sentiment-resetting correction could be ahead.

This week’s inflation-related US economic releases could be crucial for risk assets, at least as far as the short-term trends are concerned, with the yield-sensitive asset classes badly in need of a meaningful bounce in bonds.

Tomorrow we will have the Purchasing Price Index (PPI) coming out, and after two surprising miss in the inflation-measure, analysts expect a 0.2% rise in both the headline and the core measure following last month -0.1% declines.

GBP/USD, 4-Hour Chart Analysis

Besides the Dollar, the recently volatile Pound could be in the center of attention again, with the British monthly GDP, Manufacturing Production, Industrial Production and Goods Trade Balance all coming out. While the Pound had a bullish session, especially against the USD, climbing back above 1.31, the longer-term trend in the currency remains negative even in the case of a rally to the key resistance zone near 1.345.

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Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.