The XJO is expected to open lower this morning following a sell down in the U.S on Friday. Their futures are in the green this morning which may explain why we aren’t opening further down.
We should open near 7,750, which is the key support we have flirted with both recently and over the past few weeks of sideward trading. 7,750 is also roughly where an underlying uptrend line comes in, so we may manage to hold it this morning. If U.S futures come off however, then our market will have less confidence that their market may bounce back tonight, and in turn sell down further throughout our session. If our market does break lower, then 7,000 is the next key level of support which is also where the 50 day MA comes in.
As expected, our market has been tracking sideward for the past few weeks after making new highs at the start of the month. The U.S has been slowly griding lower – the first real sign of weakness since their extraordinary run that began in October last year. Though both markets continue trading in broader uptrends, the past few weeks have showed a strengthening undercurrent of uncertainty around interest rates and sticky inflation. Indeed, the last reading in the U.S was stronger than expected and the narrative of interest rate cuts this year is slowly losing credibility. The lingering hope lies in the fact that stronger than expected economies, with full employment, at least signals a soft landing – an almost unprecedented scenario following a tightening cycle. However, much of the bull run has been built on the back of rate cuts this year, and an awakening to the current reality should at least facilitate a well overdue correction or pullback.
In essence, though we assume market should continue higher overtime due to the underlying uptrend, sentiment is shifting and we need to be aware that markets are overdue for a pullback. When this occurs is hard to predict.
US Markets
US shares closed firmly lower on Friday, with each of the three major indices finishing notably in the red. The selling continued after the stronger than expected CPI (inflation) data last week, which was accelerated on Friday by statements from Federal Reserve Bank of Boston president Susan Collins and New York Fed president John Williams, who stated that it would take more time for policy makers to become confident enough to cut interest rates. For a market that has rallied in part on a belief of rapid rate cuts in 2024, this is not what they wanted to hear. In other news, the earnings season kicked off on Friday as well, with JPMorgan, Citigroup, Blackrock, and other large financials fall after their results, while State Street managed to finish higher. Overall, we do need to be careful about the potential for further selling from here, given that markets are technically looking a little bearish, and that the fundamentals are turning a little negative as well.
All eleven sectors groups of the SP500 closed lower on Friday, with Materials, Technology, Discretionary, and Energy stocks seeing the most selling. All other sectors saw notable selling however.
Technically, the SP500 broke below 5,150 on Friday, with the index continuing lower to the next key level at 5,100. Should the index break below this level, we are likely to see further selling, with the next major level around 5,050. Should the index bounce from here, the first level to the upside would be the previous support at 5,150, which would have to break before further gains look likely.
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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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