The XJO is expected to edge lower on open this morning as weakness and uncertainty continues to underpin markets. The U.S on Friday finished flat, rebounding intraday from key support at roughly 4,330. This should translate to our own market in holding its key support at roughly 7,100. There is also a support at 7,150 which we may hang around and flirt with during our session today. U.S futures are flat at this stage.
Markets turned on a dime last week, with positive sentiment around interest rates being flipped on its head. Worries that the Fed will keep rates higher for longer saw the U.S sell off and issues around China (the second largest economy) compounded fears. Our market, which had only just recently gotten over its own scare of higher-for-longer rates, was still happy to match the U.S falls pound-for-pound. It may seem we have over extended compared to the U.S, but since our highs we have fallen only just over four per cent. The U.S on the other hand has fallen closer to five per cent. The difference is marginal.
Technically, the U.S is halfway to a healthy correction. If they continue that path, our market will follow suit. This would bare minimum look like 7,000. Considering we didn’t share much of the gains the U.S did prior to pullback to justify the correction, it is reasonable to suggest 7,000 to 6,900 will hold even if the U.S sells off another three to five per cent. Roughly 6,900 marks the lows for our market since late 2022 and our market will likely be reluctant to trade below it if the U.S simply corrects.
This is a medium-term outlook though, and we need to observe how things play out in the short-term. The U.S could easily hold their key support and have a relief rally. This doesn’t translate or require a shift in sentiment as it is important to remember that a key characteristic of a downtrend are lower peaks as well as troughs. Indeed, our own market looks like it is forming a downtrend. If we do see a relief rally this week, depending on when it starts, we could see 7,200 to 7,250 and move back to the convergence of the 200, 100, and 50 day MAs.
In the week ahead we have the Jackson Hole Symposium from Thursday night to Saturday night. Powell is expected to speak Friday night, and markets will be watching whether he reinforces a higher-for-longer stance or eases up. Aside from that, there is U.S PMI Wednesday night and not much else. In essence, there is not much in the way of reporting this week until Friday night.
Our reporting season continues, however. Whilst markets are sorting themselves out, it is a good idea pricing up reporting strategies like strangles and straddles – so far there have been some great opportunities this season. In terms of optionable stocks reporting this week, we have IAG, BSL, ALD, and A2M today. Tomorrow, we have AWC, BHP, COL, WDS. On Wednesday we have STO, WOW, WTC, ILU. On Thursday we have MPL, TAH, S32, QAN. And on Friday we have WES. Price up strategies for stocks reporting tomorrow or Wednesday. Just be sure to double check they are indeed reporting by visiting their website and checking how much movement they might typically see on the back of their report by observing their moves of the past few seasons. 5% is not a bad rule of thumb when looking for movement. Of course, call the office if you would like help with any of this.
US Markets
US shares closed relatively flat on Friday, with prices initially trading lower before rebounding to finish flat. Investors remain extremely concerned about the possibility of inflation re-emerging and that further interest rate rises will be required. The major event for markets this week will be the Federal Reserve policy symposium at Jackson Hole, Wyoming, which will run from Thursday to Saturday. At this meeting, Fed members will discuss policy strategy and are expected to provide updates on whether more interest rate rises are likely. After some extreme volatility across the past week, some investors are expecting that Fed members will speak to try and calm markets.
Five of the eleven sector groups of the SP500 closed lower on Friday, with Communications the weakest performers. Energy stocks were again the strongest performers.
Technically, the SP500 broke below several key support levels last week, including 4,450 and 4,400. The index fell to the next level to the downside on Friday 4,325, which it may have bounced off. Should the index break below 4,325, we are likely to see further selling. Should the index rise from here, the previous 4,400 level may act as resistance.
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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