The XJO is expected to edge lower on open this morning following another indecisive night of trading in the U.S on Friday which saw their market retake intraday losses to finish marginally lower.
We should open near 7,320. Our next key level of support is at 7,280. At this stage it doesn’t seems like that level is under threat today. The U.S dipped below their own key support at 4,460 on Friday but managed to finish slightly above it by close. It seems likely that they would need to have a meaningful break below that support for our own market to do the same. Note that they are holding a short-term downtrend line and either it or the support will break in the coming days. If 7,280 does fail, then expect a move straight to 7,250 to 7,200. These are key levels of support, and roughly where the key 200, 100, and 50 day MAs have converged. It offers a point of safety for our market and mean reversions are typical.
Markets continue to weigh the current and future monetary policy environment against future economic conditions and health of companies. The U.S is coming out of a reporting season, and we are in the middle of one. So far, it has been mildly positive across the board for both. It seems 2024 will be the battle ground as the effect of interest rates on company balance sheets and key economic measures are likely to come to a head. Our market remains skeptic as always, however, will likely be happy to jump on the bull bandwagon if the U.S bounces from support and continues their uptrend.
In the week ahead, things are relatively quiet. We have RBA minutes tomorrow at 11:30 (AEST). These releases often don’t have a strong and immediate effect on our index – though they can and have. On Tuesday night the U.S has retail sales numbers. On Wednesday the New Zealand central bank will make an interest rate decision and that night the U.S has building permits and FOMC meeting minutes. On Thursday we have local employment data. The RBA will want to see unemployment rise. And to cap off the week we will get an update on Eurozone CPI.
Typically, we wouldn’t expect any of the data this week to be a catalyst for movement, however volatility has gone to bed for both us and the U.S, and markets are likely looking for one. The most important release is arguably our local employment data on Thursday and the U.S FOMC minutes Wednesday night. Markets are hard to predict at the moment so defensive time decay strategies like OTM Bear Calls and Bull Puts still seem likely the play.
Finally, we have company reporting continuing this week which adds another factor into the mix. Reporting strategies like strangles and straddles are certainly worth a look. Optionable stocks reporting this week include BEN, GPT, LLC, ANN and CAR today. CSL, TWE, and SEK tomorrow. TCL and EDV on Wednesday. TLS, GMG, ASX, AMC, and SHL Thursday. Keep in mind it’s likely worth entering reporting strategies with Options two days prior to the report, and both TCL and EDV often seem to have decent moves on the back of their releases so it would be worth pricing something up on them today.
US Markets
US shares closed mostly lower on Friday, with the tech-heavy NASDAQ falling, while the more value-based DOW JONES finished higher. The broad-based S&P500 finished slightly lower. There was a lack of major US economic data on Friday, though one measure of producer prices did show price growth. Overall, US markets have been falling for the past fortnight as prices return to trend lines and support levels. It seems a bit of uncertainty has crept into the minds of investors. Investors had been buying up on the belief that interest rates were at a peak. However, after slight rises in CPI growth and with economic data still looking solid, it is uncertain whether this is the case. Look for further US economic data to point to whether the economy is slowing and inflation is falling.
Seven of the eleven sector groups of the SP500 closed higher on Friday, with Energy stocks again the strongest performers. Technology stocks saw the most selling.
Technically the S&P500 has fallen back to the uptrend line and potential supports at roughly 4,450. These are some key levels so there is every chance we see a bounce from here. Do not pre-empt the bullish move however, and wait for a nice clear entry bar off these lines, otherwise, if the index breaks to the downside, we could see substantial further selling.
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Advisor at TradersCircle and Emerald Financial
Joining the team at TradersCircle in 2011, Karo has extensive experience in both investing education and derivatives trading.
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