The XJO is expected to rally on open this morning despite a pullback in the U.S last night. Their futures are also in the red.
Perhaps it is because our market has already fallen over 3.5%, where as the U.S has barely fallen half of that, as to why our market is finding strength this morning. Perhaps it is also because we have already had three sessions of falls in a row, and our market typically doesn’t like extending beyond that unless we see it reflected more strongly in the U.S. Like the main reason for our rise this morning however is that the main sector to fall last night was tech – which isn’t well represented in our market. Indeed, their other sectors seemed to stabilise on whole which is feeding our market this morning.
Regardless, sentiment has shifted rather quickly over the past few days. With our weighted CPI coming in stronger than expected, not only are rate cuts now likely further away, but murmurs of rate rises are making their way back into commentary. Of course, this will continue to develop as macro-economic news comes out.
Technically, yesterday we rebounded off 7,600 intraday. We should continue that rebound this morning, testing key resistance near 7,680 to 7,700. Our market is also likely retreating back towards the 50 day MA which sits just above 7,700 as a point of comfort.
Ultimately, we should continue to expect the market to trade in a broad range, with 7,550 to 7,500 being the floor, and 7,850 to 7,900 as the ceiling. However, sentiment remains tied to the news and will likely dictate whether our market continues to be range bound, or break either way. At this stage it seems sentiment has shifted to bearish, and we therefore would want to keep an eye on the bottom of the range.
US Markets
US shares closed lower overnight, with each of the three major indices closing firmly in the red. The movements led the DOW JONES index to record its worst three day period in seven months. However, the selling was confined to technology stocks, with most sectors closing higher. The selling came despite an easing of yields overnight, which suggests the movements could have been a bit of profit taking, with share prices around all-time highs still. Overnight US GDP growth data came in weaker than expected, as did PCE price data, both of which are deflationary signals, suggesting that US rate cuts are still coming this year. Given this is the case, the overnight selling does look a little bit odd, but selling momentum had been starting to build up this week. Tonight we will see the full PCE price data report (the Fed’s preferred inflation measure) and this will give us clues as to the timing of potential rate cuts this year. A weaker than expected number should send markets higher and a stronger than expected number could trigger more selling.
Nine of the eleven sector groups of the SP500 closed higher overnight, with Real Estate, Utilities, and Materials stocks the best performers. Technology stocks saw the most selling, followed by Communications.
Technically, the SP500 broke below support at 5,260, but may have found support at the next level around 5,220. However, technically, the index now looks a bit bearish, and could fall back towards the next support level around 5,150. Should the index rise from here, the previous support at 5,260 may now act as resistance; should that break, we should see a move back towards the all-time high around 5,320.
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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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