The XJO is expected to open lower this morning following a small pullback in the U.S on Friday. Their futures are flat this morning.

The U.S is starting to show a slowdown or consolidation after it dog-legged higher recently to be within arms reach of their all-time highs. Our market, which had finally decided to join the rally, managed to get back to 7,450 on Friday – a key resistance and a stone’s throw from our own all-time highs near 7,600.

This morning however we will largely give up all of Friday’s gains, opening near 7,370. Our snap lower is likely our market interpreting the U.S’s muted moves over the past couple of sessions as a herald for a spat well-earned profit taking. We also have RBA minutes from their last meeting this Tuesday where it may show that the RBA is not completely onboard with the peak-rate sentiment that has largely fuelled the recent rally.

We shouldn’t expect the positive sentiment to suddenly vanish either. Even though profit-taking is well-earned, it will actually help the uptrend stabilise and be sustainable. It could also create a base for the Santa-rally – although it is completely reasonable to suggest that Santa came really early this year and that he has already come and gone.

In essence, when markets are trading near the top of their range having just had an extraordinary rally, it is hard to know both when the inevitable profit-taking will come, and how long it will last. Sentiment remains positive, so we should expect the trend to continue, but it could take a month of consolidation before markets are happy to continue higher again – especially with holidays and low volume around the corner. Furthermore, the RBA could create some headwinds for us if they don’t vindicate the Bulls with dovish sentiment. Indeed, if they are hawkish, it will by the very least keep our market suppressed in the face of any further buying in the U.S, if not cause a sell down which could be exaggerated if the U.S profit-takes.

7,350 to 7,380 remains the key support that we will test on open this morning. With U.S futures flat, our market should feel comfortable holding these levels.

Aside from our RBA minutes tomorrow, there are a few other key releases to keep an eye out on this week. Tuesday night there is Eurozone CPI data, and UK CPI on Wednesday night. Also, on Wednesday night there is U.S consumer confidence and existing home sales. On Thursday night the U.S has GDP data, and on Friday night they have PCE data and new home sales.

US Markets

US shares were mixed but mostly flat on Friday, with prices largely unchanged from Thursday. Overall, prices have been rocketing higher since the start of November, and despite the lack of movement on Friday, we haven’t really seen any sign of an impending pull-back. US economic data was mostly negative on Friday, with lower than expected manufacturing production. This week will be a pretty quiet one for US economic data, and with shares having just jumped an immense amount, don’t be surprised to see slower movement this week.

Only three of the eleven sectors of the SP500 closed higher on Friday, with Technology the strongest performer, followed by Discretionary stocks. Real Estate, Utilities, and Healthcare saw the most selling.

Technically, the SP500 is on a very strong upwards movement, but it could be stalling out around the 4,720 level. Overall the momentum remains to the upside and we would expect an eventual rise to the all-time high around 4,800. However, we could also see a profit taking pull back first, with an expected higher trough on any pullback in the short-term.