Sforex

SPX: US economy : The Light at the end of the tunnel found.

INDEX:SPX   S&P 500 Index
164 0 3
-Fundamental Analysis:
Firstly, I recap what happened last week; basically, we found the light at the end of the tunnel, with many positive economic data, I could be confident to say that: Don’t worry too much about the temporary delay of US economy; we are still on the right path.
- Personal Income             : positive
- Personal spending: positive
- ISM Manufacturing PMI: positive
- ADP Employment Change : negative
- ISM Non-Manufacturing PMI : negative
- Nonfarm Payrolls : positive
- Average Hourly Earning(YoY) : positive
- Unemployment Rate :negative
The data seem is mixed, but overall it’s positive. Unemployment rate rises to 6.7%, this could be explained that labor force of USA is up sharply last two months: near 800k people enter labor force. Basically, each month, US economy has to create at least 150k jobs to catch up the improvement of US population. However, one or two months of data don’t set any meaningful trend; we should check the data for at least three months. Moreover, we know that FED have a threshold for Unemployment rate : 6.5%, if the unemployment rate falls below that threshold, they have to consider hike short term rate, but FED has no intention of raising rate this year, so higher unemployment rate gives them a little breathing room. In the long term, I still believe that Unemployment rate rapidly falls below 6.5%.
Last week, I also pay my attention in the FED’s Beige Book : the report of 12 FED Districts about US economy. In the Beige Book, the severe weather caused the recent temporary delay of US economy, and most of Districts reported improved levels of activity as well as employment. The outlook is optimistic. With information in the Beige Book, I could conclude that the FOMC Minutes this month, FED would continue taper. When the harsh winter is over, construction sector begin to restart, US economy rapidly comes back the recovery path.
Next, I evaluate leading indicators of US economy :ISM Manufacturing PMI, Personal Income             and Personal Spending, Average Hourly Earning. Last two week, when I saw Durable Goods Orders, I knew surely that ISM Manufacturing PMI will be positive, and I was correct. The manufacturing sector is always very sensitive to the change of economy. If the employers in this sector see the overall economy is pessimistic, they will lay-off workers and vice versa as well as they will order more or decrease materials to meet the demand. I can see the pickup in manufacturing sector, and I know surely that in next months, US economy would expand greatly. Moreover, regarding to Personal Income             , Personal Spending, and Average Hourly Earning, those data link to domestic consumer, 80% GDP of USD is contributed by domestic consumer, so if domestic consumer rises up, the US economy would expand as a result.
In conclusion, there were positive signals, and we should wait next data to confirm, but I believe in the improvement of US economy.
-Technical Analysis
If I put my faith in the improvement of US economy, the trend of SPX             would be uptrend.
I think SPX             quickly test 1900 key resistance level .
However, I detect some unusual signals.
- Three Doji Stars : downside risk.
- CCI indicator shows bearish signal: divergence.
I think SPX             would test 1848 level and bounce back to test 1900 level.

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