The XJO is expected to edge higher on open this morning despite a small pullback in the U.S last night. Our market has certainly overshot to the downside in comparison to moves in the U.S lately, and also didn’t get to experience the broader rally they enjoyed over the past few months. This highlights the negative sentiment underpinning our market, likely fueled by the reality that higher interest rates are on there way than what was previously anticipated. Our soft open this morning could likely be simply some consolidation or relief, helped by slightly positive U.S futures this morning. Yesterday we managed to rebound intraday to retake over half of the session’s losses by close. 7,100 remains key support which we are expected to return to on open this morning.
We are also likely consolidating at the bottom of the recent range as we wait for the local CPI reading tomorrow at 11:30. This, alongside interest rate decision and minutes, are the among the most market sensitive news in the current climate. At this stage, it feels likely that we will need to see CPI come in lower than expected in order for our market to recover. However, if it comes in as expected, this may be just enough for our market to hold. Furthermore, with the market trading near the bottom of the range at key support after a spate of heavy selling, it would make sense for a relief rally to come soon. The next key target to the upside is about 7,125 to 7,150 which is roughly where the 200 day MA comes in. Beyond that, we would look to roughly 7,230 where the 50 and 100 day MAs have roughly converged.
US Markets
US shares closed mostly lower again, with the Tech-heavy NASDAQ seeing the most selling, while the SP500 was moderately lower, and the DOW JONES was flat. The movements looked to be continued profit taking after strength in the early parts of June. In general, prices for US shares remain elevated compared to the past 18 months. There will be a little bit of US economic data tonight, with building permits and durable goods orders, but these are unlikely to be too influential to market movements. Instead, we would expect US markets to continue to drift with some profit taking as they await the next major news around interest rates, inflation, and Fed member opinions.
Five of the eleven sector groups of the SP500 closed lower overnight, with Communications the weakest performers, followed by Tech stocks, and Discretionary. Real Estate stocks fared the best, followed by Energy, and Materials stocks.
Overall, the is drifting back to the potential support at 4,300 index points, this level would have to break for further selling to look likely. The index remains in a longer-term uptrend however, so we would expect 4,300 to hold and for prices to then move higher. To the upside, the index has found resistance at 4,450 which would have to break for further gains to look likely.
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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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