The XJO is expected to open flat this morning following a pullback in the U.S on Friday. U.S futures have moved into the red, and they are likely to drag us down if they remain so by market open.
On Friday we pretty much moved back to our all-time high resistance and level and pulled back intraday. We were unwilling to make fresh highs without the U.S doing so again first. The U.S on Friday also rebounded from their all-time high resistance, which helps explain our market’s muted open.
At this stage the U.S remains strongly bullish, but our market less so. The U.S shed its stronger than expected CPI reading after one day of selling. With the UK and Japan in recession, the U.S could see their recent stronger than expected economic data as perhaps indicative of that “soft-landing” the Fed has been promising since the beginning of the tightening cycle. Of course, this also means there is a higher chance that rate cuts are pushed further out, but the U.S market does not seem to mind at this stage. This has caused our market to somewhat track sideward recently. Fundamentally we are not really in the same position to rally, but the U.S is dragging us higher. With the miners all over the place (thanks to swings in Iron Ore), the banks and financials have done a lot of the heavy lifting lately. However, they are severely overbought, and one would question how much gas is left in the tank. Earnings is expected to retract on average two percent (on conservative estimates) and our market is less tech driven, which has been a large factor in U.S rallies. Finally, and most importantly, most of the gains in the U.S have come from a handful of companies. The vast majority are not doing well. This would be a truer reflection of our market.
As it has been of late, it remains difficult to predict index movement. The U.S is overbought and trading in an ascending triangle. If they continue to push through, our market will likely follow suit. However, we have also seen our market track largely sideward in the face of continued fresh highs in the U.S, and so it isn’t exactly clear how things will play out even with strong leads from the U.S. Adding company reporting on top of that and the short-term view is rather murky. Remember however, that the trend is still up – we continue to make higher peaks and troughs, and though it is a slug, we should expect our market to continue dragging its feet higher.
Last week we had local unemployment data come in weaker than expected, which should be a positive for our market as it increases the likelihood of an earlier rate cut. In the week ahead, tonight the U.S is closed. Tomorrow, we have RBA minutes from the recent meeting. The market will try and get some clarity on monetary policy but don’t expect a reaction. On Wednesday night the U.S Fed will release their minutes from their last meeting as well. On Thursday we have local manufacturing and services PMI, and the U.S has theirs Thursday night. Its not a big week of economic data.
US Markets
US shares closed lower on Friday night, with each of the three major indices closing in the red. The selling came with stronger than expected US producer prices and inflation expectations, which suggests that the battle with inflation is still not won. All of the recently strong data has pushed out the US rate cut timetable, which would be expected to be bearish for the market, though the market has held up really well. US shares have really been driven by a handful of large technology stocks however, many of which are looking quite expensive. These include NVIDIA, which has tripled in value across the past year. NVIDIA will report earnings on the 21st of February, and these results will have to be very good to justify the current share price. US markets will be closed tonight for the Presidents’ day holiday.
Only three of the eleven sector groups of the SP500 closed higher on Friday, with only Materials seeing notable gains. Communications saw the most selling, followed by Real Estate, Technology, and Industrials stocks.
Technically, the SP500 closed lower on Friday as it held below the all-time high resistance level around 5,040 index points. The index may now come back to the longer-term uptrend line, which sits around 4,960 index points; this trend line would have to break before further selling looks likely. The index would have to close above 5,040 before further gains will look likely.
Want to learn how to trade?
The team at TradersCircle/Emerald Financial have released a free online stock market education course, click here to enrol and get started.
Advisor at TradersCircle and Emerald Financial
Joining the team at TradersCircle in 2011, Karo has extensive experience in both investing education and derivatives trading.
Latest posts by Karo Cornips (see all)
- XJO to open flat with US markets back around resistance - September 2, 2024
- US markets close lower ahead of NVIDIA report, which disappoints - August 29, 2024
- Investors take pause ahead of key NVIDIA report - August 28, 2024
Leave a Comment
You must be logged in to post a comment.