The XJO is expected to open higher this morning following a strong rally in the U.S overnight. They managed to break their tight consolidation range, but are trading near resistance and their futures have edged into the red. Our market is translating this to an open near 7,250 which will wipe out all of yesterday’s losses and likely put us back into the tight consolidation range we were trading in prior to yesterday’s break lower.
Lower than expected wage price index gains yesterday helped us rebound from our lows to retake roughly half of the intraday losses. 7,150 to 7,200 once again proved a strong support for our market, alongside the 50 day MA which the market settled on by close. We are in a cycle where bad economic data is a good thing, as the recent RBA minutes further indicated what markets have feared – more rate hikes are coming. As our market prices in the prospect of more hikes than what was previously expected, we may find our market reluctant to price in as much of the gains from overseas. Coupled with the U.S trading near resistance and their futures flat to negative this morning, we shouldn’t expect a break of our own consolidation range today. We will likely need to see the U.S make fresh highs before we see 7,400 again.
US Markets
US shares rebounded strongly overnight, with each of the three major indices finishing firmly in the green. This came after positive noises from US lawmakers that a debt ceiling agreement could be reached by the end of the week. Also improving sentiment was a report showing fairly strong numbers of building permits and housing starts. There was however, another big build-up in US oil inventories, though this wasn’t enough to reverse an earlier strong jump in oil prices. There’s not really too much more scheduled for US markets this week, and next week is also fairly sparse for US data. Should we see a resolution to the US government debt ceiling, we could see a jump higher in US markets.
Nine of the eleven sectors of the SP500 closed higher overnight, with only Utilities and Staples closing flat to lower. Financials saw the most buying, while Discretionary and Energy stocks also saw strong buying.
The SP500 remains in in a broad sideways range, which it has held for some time. This is above the 4,050 as a support level, but below the 4,170-resistance level. Its not at all clear which way the market wants to break. Should we see a break above 4,170, the next upside target would be 4,200 index points. Should we see a break below 4,050, the next target to the downside would be the key 4,000 level.
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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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