The XJO is expected to edge higher on open this morning, continuing the tight consolidation as we wait for further leads from the U.S who seem to be stalling near their all-time highs.
Certainly, the U.S looks ready for a spat of profit taking, with of course the real possibility of new highs being set before we see one. What is clear is that the aggressiveness of their breakneck rally is not sustainable, and there is a high likelihood that our market is unwilling to commit to buying with an expected U.S pullback lurking around the corner. This scepticism has also in part kept our market from rallying to the same extent as the U.S since our markets’ lows, leading to our gains only being roughly half of theirs.
Our market is also in a different monetary policy environment than the U.S. A large contributor to their recent rally was built on the celebration that their market is thought to be at peak interest rates. This was assured by lower-than-expected CPI readings and soft key economic data. Their may be an argument that the U.S is getting ahead of itself, especially if future data points don’t keep the same narrative, but the status quo is that the Fed did its job and that the tightening cycle is over. Our market has no such reassurance. Our CPI and key economic indictors remain rather sticky. Although we are seeing “progress” on the path to lower CPI, our market cannot say with a straight face that we are indeed also at peak rates.
Technically we are consolidating between roughly 7,030 and 7,100. We have broken the short-term uptrend line (with a whimper, not a bang), however there is still a strong argument that our market is in the midst of a change in trend. The broader downtrend line our market has been trading under since the highs in August has certainly broken, and we are starting to see higher peaks and troughs. Although the uptrend line has broken, it could simply be a shallowing of the uptrend.
There are plenty of key levels around. 7,000 remains a key support, with 6,950 and 6,900 the next levels beyond that. 7,000 is also where the 50 day MA comes in, which our market will want to hang around if we do see some healthy profit taking from the U.S. Otherwise, if the U.S does manage to break higher and set fresh all-time highs, our market will likely see 7,150 to 7,200, which are not only resistances but where the 200 day MA comes in.
Finally, we need to remember that there is usually some kind of Christmas rally between now and the new year. In past years it has been sometimes meek and short lived, and in others it has been aggressive and extended – though typically following a decent pullback.
In the week ahead we have a CPI adjustment on Wednesday. It is expected to come in lower than the previous read. This is not a typical CPI reading, but our market will be watching it closely regardless. Otherwise, we have U.S new home sales tonight. Local Retail sales numbers tomorrow, and U.S consumer confidence numbers tomorrow night. On Wednesday night we have U.S GDP data, and on Thursday night we have Eurozone CPI and U.S PCE data.
US Markets
US shares mostly closed higher again in shortened trading on Friday. Markets closed early due to the Thanksgiving holiday the day before. There was a lack of major US economic data, though a reading of US economic activity showed a contraction in manufacturing production, but an expansion in the production of services. Instead, prices are continuing higher with the current momentum, though the momentum does appear to be slowing.
Nine of the eleven sector groups of the SP500 closed higher on Friday, with Healthcare the best performer, followed by Energy. Technology and Communications stocks were the only ones to close lower on average.
Technically, the SP500 is on a super-strong short-term uptrend but it may be starting to find some resistance at roughly 4,550 index points. Overall, the index looks likely to continue higher to the yearly high resistance at the 4,600 level. However, a small breather could be seen first, should this occur, the first downside target would be the 4,520 level.
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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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