The XJO is expected to edge higher on open this morning despite a small pullback in the U.S on Friday. Our positive open may be due to positive U.S futures coupled with the fact the U.S had a strong bounce from their intraday lows to finished only marginally lower. The U.S also held the uptrend line which is also a positive sign that despite them being near the top of the trading range, are still holding strength.
Both markets, however, are looking overbought in the short-term. Furthermore, we are both trading near resistance, with our market expected to once again flirt with key resistance on open. On Friday, we too held our uptrend line, and so we are trading in a small ascending triangle.
It is hard to know how our market will break. Typically, we would expect the underlying trend to prevail. However, with markets trading near the top of the range, and the steepness of the recent rally, it is harder to have that confidence. If we do not break higher, it is not necessarily an indication of an extended pullback. It could simply be that we consolidate at the top of the range for a spell.
In the week ahead, there is not much in the way of economic reporting from the U.S, with only manufacturing numbers and existing home sales on Thursday night as something to keep an eye on. Otherwise there is company reporting this week, and we could see some push and pull from results and future guidance.
US Markets
US shares closed slightly lower on average on Friday, with each of the three major indices trading back and forth to finish slightly lower. US markets were helped by strong earnings reporting from several major US banks, with JP Morgan, Wells Fargo, and Citi Group all reporting better than expected results, as did major health insurance provider United Health. It has so far been a very strong start to the earnings reporting season, which kicked off late last week. Plenty of major names will be reporting over the coming days, which could help US markets maintain their recent strength.
US economic data was mixed on Friday, with worse than expected retail sales, while industrial production was better than expected. The weak retail sales will be seen as a positive for markets, who would like to see further drops in demand so that inflation continues to fall from here.
Four of the eleven sector groups of the SP500 closed higher on Friday, with only Financials rising a notable degree. Real Estate stocks were the worst performers, while Utilities also saw selling.
Despite the minor selling on Friday, the S&P500 remains on its medium-term uptrend line, and the US market looks cautiously bullish. With the index continuing to hold the trendline, it looks likely to continue higher to the next major resistance level of 4,200. Should the index fall from here, it will have to break the uptrend line, then the support at 4,075, before it will look like falling further.
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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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