Despite strength in US markets (with the S&P500 index breaking strongly above the key 4,300 resistance level), our market is expected to record a fairly lacklustre open today, with a slight gain of maybe five points on Friday’s close expected. Our market remains in a negative slant after a series of RBA rate rises, and with Australian GDP growth coming in much lower-than-expected last week. Also dampening sentiment a bit today will be weakness in commodities prices across the past few sessions.
Still, our market is holding above a series of very key support levels, so this would be the perfect platform to rise from should sentiment turn. It is likely that our market will now wait to see the reaction to several key US events this week, with a US CPI (inflation) reading tonight, followed by an US interest rate decision tomorrow night. Either of these events could trigger directional movement in the US and indeed our own market.
Technically, we sit around a series of key support levels, including the 200-day moving average, the medium-term uptrend line, and the support level of 7,080. Each of these levels would have to break for further selling to look likely. Should we bounce from these key supports, we would expect a move to the first upside target around 7,200 index points, which is a resistance level and also roughly where the downtrend line sits.
US Markets
US shares closed slightly higher on Friday and then strongly higher overnight. This SP500 and NASDAQ each enjoyed their highest closing level since 2022. Not everything has been buoyed by the strong movement however, with oil prices falling strongly over the period, sending energy stocks lower. US markets are experiencing a period of strong bullish movement at the moment, in contrast to the relative weakness of the Australian market. However, the bullish sentiment will face a test this week with tonight’s release of US CPI (inflation) data, which will influence the narrative around further US rate rises from here. US CPI is expected to continue to slow to 4.1% YoY, though core inflation is expected to remain over five percent. Following this, we will get a Fed interest rate decision on Thursday morning, with the Fed expected to keep interest rates on hold.
Eight of the eleven sector groups of the SP500 closed higher overnight, with Technology, Discretionary, and Communications stocks the strongest performers. Energy saw the most selling after weakness in oil prices.
Technically, the SP500 continued on its upwards move and closed above the key 4,300 resistance level overnight, after testing the level for all of last week. After breaking this level, its hard to say where the upwards movement will stall, but 4,400 is a potential upside target. To the downside, 4,300 is now likely to act as support.
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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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