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By Mingze Wu

Hourly Chart

(click to enlarge)

U.S. Stocks edged higher on Monday, continuing the strong bullish rally seen on Friday. Things weren't smooth all the way for the bulls though, with prices dipping lower during the early European session where Futures prices headed to a low of 1,806 after soft resistance 1,809 held firm. But bulls were able to find support from Friday's soft ceiling turned support level, rebounding higher even before U.S. stock exchanges opened. This bullishness is interesting as there wasn't any fundamental news releases during the period of rally, suggesting that the bullish momentum is simply riding on sentiments of last Friday - which was unexpected in itself, considering that the stronger than expected NFP numbers released on Friday should have resulted in a net bearish reaction.

The mystery deepens when we consider that U.S. stocks remained mostly elevated even though various Fed members who spoke yesterday suggested that the U.S. Central Bank may be closer to a QE Tapering action than previously thought with non-voting Fed Presidents Fisher and Lacker both expressing their preference for tapering action sooner rather than later, but the impact of their words certainly cannot match those of James Bullard, who is voting in the upcoming December meeting. Bullard went on record to say that the "best move" for Fed would be to have a small taper in December - a clear indication on how he would vote on 17th December. However, the bearish reaction to what Bullard said at around 1pm EST (2am SGT on Chart) was mute, and makes one wonder if this whole "Taper Fear" has any relevance anymore.

This is not a new assertion as we have observed last week, where prices were actually reacting bullishly to better than expected economic news (see immediate reaction after GDP, ISM Manufacturing. The only exception was NFP.). Prices did end up pushing bearishly by the end of day, but that may be better attributed to profit taking and technical pullbacks. Yesterday's muted response is a clear sign that the market may be less anxious about the eventual ending of the Fed's QE program especially given all the better than expected economic numbers recently.

Market sentiment is also broadly bullish as well, with fear index VIX falling down to 13.5% yesterday vs. last week's high of 15.7%. This is highly interesting as it seems that the market is not even concerned about volatility as we approach the important FOMC meeting next week. Treasury VIX is also lower, reflecting the calmness the market is having by seeing a lesser need to cover their positions with options.

All these favor a continued push higher for S&P 500, but price will still need to break the resistance barrier from 1,812 - 1,814 (highs of 2013) for confirmation of strong bullish conviction. Failure to do so will open up a move lower towards 1,800 and potentially all the way to the consolidation zone between 1,785 - 1,795, but similarly bears will need to clear the 1,806 soft support as a sign of strong bearish conviction.

Weekly Chart

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The Weekly chart remains bullish with the rebound off Channel Top last week, a confirmation of the bullish breakout that happened 4 weeks ago. This allows bullish traders to ignore the Overbought in Stochastic, suggesting that bullish momentum may still be able to climb further. This seems reasonable due to the "Santa Claus Rally" that favors a bullish December historically. However, it should also be noted that bullish headway has been rather limited ever since the breakout, hence traders should still practice caution and wait for further bullish confirmation in the short-term.

Disclosure: No positions.

Source: S&P 500 - QE Taper No Longer Scary?