The XJO is expected to edge lower on open this morning despite a small rally in the U.S overnight. Their futures are flat, and so it is sort of puzzling as to why our market is so reluctant to price in their gains.
Aside from the clear cynical and meek attitude our market typically has, our reluctance may be chalked up to a few key factors.
First, tech in the U.S has been leading much of the recent rally and is overrepresented in their market compared to ours.
Secondly, their market is celebrating what they believe to be the end of the interest rate tightening cycle. Our market on the other hand has no such reassurance from our own RBA. Even though it is likely we are in a similar situation to the U.S, we are waiting for further evidence in a slowdown in economic activity from key indicators, and more dovish tones from the RBA in response.
Finally, the U.S has had an extraordinary run from their lows with little to no profit taking. These types of runs are not sustainable. Furthermore, despite their tentative break higher last night, are trading quite close to their all-time highs. Ultimately, our market may simply be expecting a pullback from the U.S, and is reluctant to buy into a market that has a pullback lurking around the corner. The issue with this of course is the U.S continues to run higher whilst our market misses out on gains, but it may also translate into our market not falling as hard when they inevitably do profit take.
We should expect sideward movement in the current environment. When the U.S does pullback, then 7,000 to 6,950 seem like logical targets to the downside. Otherwise, if we do decide to break character and actually rally alongside our friends overseas, then we would need to get through 7,100 resistance before we see other logical targets of 7,200 to 7,250.
US Markets
US shares closed higher again overnight, with each of the three major indices again finishing in the green. US shares will be closed tonight however for the thanksgiving public holiday. Prices did spend all of the session in the green, but they also were unable to hold at the highs of the session, pulling back late to close around opening levels. US economic data was mixed overnight, with fewer than expected durable goods orders, though jobless claims were lower than expected. A prediction for US fourth quarter GDP growth also came in higher than expected. Overall, the data was fairly mixed and did little to influence the current momentum higher. Regardless, after the monumental run prices have been on, things definitely look to be slowing in US markets, and a breather shouldn’t be unexpected.
Ten of the eleven sector groups of the SP500 closed higher overnight, with Communications and Staples the strongest performers. Energy stocks were the only stocks to close lower on average. All other sectors saw small gains.
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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