The XJO will play a bit of catch-up today after grinding lower for much of the past week, while overseas markets and particularly the US, have rocketed higher. To be fair, US CPI is falling, while our CPI remains elevated and our other economic measurables are fairly poor. Still, with commodities bouncing and continued strength overseas, we will likely see mild short-term buying. Despite this, our market is likely to remain in an overall (medium-term) negative slant, until economic data points to our economy moving in a better direction. Tomorrow’s move for our market will likely come down to the US Federal Reserve decision tonight and how the US reacts to it.
Expect strength to come primarily from our materials stocks today, though we could see a broad-based jump after almost every US sector closed higher overnight. One local sector that has been struggling recently has been our banking space, though most of the stocks in this space now look to be finding key support levels and are fundamentally extremely cheap.
Technically, our XJO is in a giant pennant pattern. We look set to rise off the uptrend line and key support levels that we have held above across the past few sessions, this should see us return to the downtrend line of the pennant, which currently sits around 7,200 index points. Until either the uptrend or downtrend breaks, we will have to expect to head into the point of the pennant.
US Markets
US shares closed higher again overnight, with each of the three major indices again driving into the green. This came after US CPI data, which is often taken as an analogue for inflation, came in lower than expected. Tonight, the Federal Reserve will decide on US interest rates, and the slowing CPI growth should allow them to pause the rate rises at this meeting. Should economic data continue to point to slowing inflation, we may already be at peak US interest rates. Still, expect tonight’s Fed meeting to include mostly hawkish language, so as to dissuade economic actors from engaging in behaviour that could lead to further inflation.
Almost every sector of the SP500 closed higher overnight, with only Utilities finishing very slightly lower. Materials stocks fared the best overnight, followed by Industrials, and Discretionary stocks.
The SP500 is continuing on its upwards move after breaking above the former 4,300 resistance level on Monday. After breaking this level, its hard to say where the upwards movement will stall, but 4,385 is a potential upside target and this level was almost reached in overnight trade. To the downside, 4,300 is now likely to act as support.
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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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