The XJO is expected to jump around 40 points on open this morning, back to the rough resistance level at 7,780, though this level could be possibly be drawn anywhere from 7,770 – 7,800. The gains come after most US sectors closed in the green overnight, with only US technology stocks seeing notable selling.
Iron ore saw further selling yesterday, so the miners are unlikely to see too much strength today. In their absence, most other sectors of the market should see upwards movement. This may prevent our market from eclipsing 7,800 today however, as most other parts of the market are already well overbought.
Should we break above 7,800, the next major upside level would be 7,850 and the 7,900 after that. It feels unlikely that our market will find fresh highs unless US markets see significant further gains, as our market has seemingly been reluctant to push back to the highs. However, tomorrow’s monthly CPI indicator for Australia, could trigger directional movement. Our market wants to see inflation continue to fall, and if it does, this could be another driver to help our market back to the highs around 7,900.
US Markets
The SP500 and NASDAQ closed lower overnight, with technology stocks dragging them lower, while most sectors closed higher leading the DOWJONES to close higher. Overall, US markets remain in an extremely bullish movement, but that doesn’t mean each day will be a gain. US markets are overbought and fresh gains are seemingly increasingly incremental. US shares have had just about everything they could ask for come true, with inflation slowing, the economy is avoiding recession, and rate cuts are likely coming in September. However, prices are extremely expensive, and US indices keep getting dragged higher by increasingly fewer stocks. US shares are likely to continue higher in this environment, but don’t be surprised to see gains come slower, and for profit taking pullbacks to occur. The major event for this week for US shares is the PCE price data on Friday, which will influence the timing of rate cuts moving forwards.
Nine of the eleven sector groups of the SP500 closed higher overnight, with Energy the strongest performer, followed by Utilities and Staples stocks. Technology stocks saw the most selling, while Discretionary was the only other sector to close lower.
Technically, the SP500 is on an overall longer-term uptrend but it may have found some resistance at 5,500. Should the market close above 5,500, the buying should continue and its hard to say where it will stall. Should we see selling, the previous resistance at 5,375 is now likely to act as support; should it break, we are likely to see further selling.
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Sam Green is the Portfolio Manager at Emerald Financial, whilst also being an Equities and Derivatives expert for his clients at TradersCircle.
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