The XJO is expected to open lower this morning following a pullback in the U.S overnight. U.S futures have also edged into the red.
Yesterday we clearly bounced off key resistance at 7,350, giving up about half of our intraday gains by close. If losses are sustained today and we close lower, it will be a strong reversal signal. The next key support however is roughly 7,250 to 7,200, which is not too far away. This is also where the 50 day and 100 day MAs comes in and should act as a solid grounding for our market in the short-term. There is also an uptrend line in play that comes in around 7,300. Our futures are holding this level so far.
US Markets
US shares closed mostly lower overnight, with each of the three major indices finishing in the red. This was despite US CPI data coming in lower than expected, which points to a continued decline in US inflation. US shares did open higher following the release, but optimism faded throughout the session, especially after the release of the Federal Reserve meeting minutes, which showed some Fed members even considered a 50-basis point rate rise at the meeting (though some considered no change). The probabilities of a rate hike at the next Fed meeting in May are largely unchanged following the major data releases overnight, with most analysts expecting a (potentially final) 25 basis point rate rise in May.
Only four of the eleven sector groups of the S&P500 closed higher overnight, with none of them managing more than very minor gains. Discretionary stocks saw the most selling, while Communications stocks also saw a notable degree of selling.
Despite the overnight selling, the S&P500 held above the medium-term uptrend line, and until that breaks, the US market looks cautiously bullish. Should the index fall from here, it will have to break below the trend line and the key support of 4,075, before it will look likely to see move back to roughly 4,000. Should the index rise from here, there is potentially some local resistance forming around 4,125 that will have to break before the index looks like heading to the next major level of 4,200.
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Sam Green is the Portfolio Manager at Emerald Financial, whilst also being an Equities and Derivatives expert for his clients at TradersCircle.
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