The XJO is expected to rally on open following a strong night of buying in the U.S and their positive futures this morning.
Yesterday we held our gains just above resistance at 7,200 and the downtrend line. And the U.S has just given us permission to follow through on the break. We should head straight to 7,250 which is both a key level of resistance and roughly where the 200, 100, and 50 day moving averages have converged. If strength persists, then roughly 7,280 to 7,300 is the next key level – a level for the market that seemed unachievable only a few days ago. However, U.S consumer confidence numbers and JOLTs numbers came in worse than expected, shifting sentiment on a dime, and providing hope once again that the Fed won’t need to maintain a higher-for-longer stance on monetary policy.
Furthermore, we may have just confirmed a double bottom reversal pattern. Our market tested 7,100, rallied to 7,200, fell and retested 7,100, and then rallied once again but this time broke 7,200 yesterday. This classic “W” shape occurring at the bottom of the range after an extended fall, is often a reliable reversal pattern. In this case, it should translate to the market rallying up to 7,300.
We should enjoy our time in the sun, but also remain aware that the weather can turn just as quickly. This will mark three consecutive days of bullish movement, in a market that that hasn’t been able to achieve more than that since it began downtrending at the start of the month – and despite the break of the downtrend line yesterday, this does not translate to our market no longer downtrending. Downtrends are characterized by lower peaks and troughs. Until we see either 7,350, the most recent peak in the downtrend, or higher peaks and troughs indicating a change in trend, it should be assumed that technically, the market remains downtrending.
US Markets
US shares closed strongly higher overnight, with each of the three major indices rallying. This came with US economic data mostly weaker than expected, with Consumer Confidence and Job Openings both lower than expected. This data points to a slow-down in the US economy, which is a positive sign in the battle against inflation. With the overnight move, US markets broke higher with many of the indices breaking their recent downtrend lines. The battle for US markets will still be over whether interest rate rises have peaked or not, and this will still be data dependent. Tomorrow night we will see US GDP data and on Friday, US unemployment data, each of these data points has the potential to trigger a repricing of interest rates, especially the jobs data. Counterintuitively, bullish investors will probably want to see a rise in Friday’s unemployment numbers.
All eleven sector groups of the SP500 closed higher overnight, with Communications, Technology, and Discretionary the strongest performers.
Technically, the SP500 broke above the resistance around 4,450 overnight and it also broke above the short-term downtrend line that had formed across August. The index now looks bullish to the next potential resistance at 4,525, which isn’t too far away. Should that level break, 4,600 would be the target. To the downside, 4,450 is now likely to act as support.
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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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