The XJO is expected to edge higher on open this morning despite the U.S renewing their buying with a strong bullish session to finish within a stone’s throw of their all-time high. Their futures are flat this morning.
Much of the rally was driven by tech in the U.S, which is underrepresented in our market comparatively, giving some reason to not only our reluctance in pricing in their Friday’s gains, but much of their rally over the past few weeks. Furthermore, our market is in a slightly different environment in respect to expectations of the future of monetary policy. The U.S is clearly celebrating the end to the rate hiking cycle, and is now greedily eyeing the pause, and subsequently the cut next year. Our market however isn’t convinced that our rate hiking cycle is over yet, albeit we are very likely towards the end of it.
Our meek open may lead to a retesting of the 7,100 resistance this morning, but with flat U.S futures, we will likely fail to push through. There is a degree of comfort for our market around these levels. We sit slightly above the 50 day MA, but slightly below the 100 and 200 day MAs. This indicates that our market is trading around the average price in both the long, medium, and short-term. It is hard to know what will ultimately drive our market to move once again. One would think that a U.S nearing its all-time highs would be enough to push our market beyond 7,100, but alas we are tentative and unsure.
We will likely need to see further evidence that our economy is indeed slowing down, which in turn should lead to lower CPI, and then finally an indication from the RBA that we have hit peak rates. The time frame on this is unclear. Alas today, we have the RBA meeting minutes, as well as Bullock talking, which may be the catalyst we need. Bullock will also speak on Thursday, and we will have an update on local manufacturing and services PMI.
US Markets
US shares closed higher again overnight as the bullish momentum continued. US markets remain buoyed by the peak rate belief, and this has sent bond yields lower and shares higher. While one might have expected a breather and some profit taking soon, this hasn’t been the case as of yet and prices continue to rise rapidly. One event that could trigger some profit taking will be tomorrow’s release of the Federal Reserve meeting minutes for their November meeting. This meeting was seen as the dovish catalyst for the gains, so if the minutes reveal that Fed members weren’t as dovish as first thought, it could trigger some selling.
Nine of the eleven sector groups of the SP500 closed higher overnight, with Technology and Communications the strongest performers. Most other sectors also saw reasonable gains.
Technically, the SP500 broke above the resistance at 4,520 overnight, which indicates further gains for the index. Technically, it now looks like the index will reach the yearly high levels around 4,600, though we may see some profit taking before that. There are many potential support levels to watch on a potential pullback, including 4,520 and 4,400.
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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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