The XJO is expected to rise this morning following continued strength in US markets on Friday. Our futures are pointing to a rise of around 20 points, to roughly 7,070 index points. Our XJO traded a bit nervously towards the end of last week as if we were almost expecting a US pullback, but should US markets continue to drift higher, it seems like we will sheepishly join them.
Markets are driving higher around the world due to the belief that inflation is coming under control and that interest rates are peaking. This is also what has driven our market higher over the past fortnight.
It is likely that this optimism could drive markets higher for the rest of the year, but don’t be surprised to see a pull back shortly given that prices have jumped strongly higher recently.
Technically, we could see a pullback and would expect to record a higher trough on that pullback. This trough could be around the 7,000 point level, but it is also possible that we are recording it now at 7,050. To the upside, the resistance at 7,100 would have to break for further gains to look likely.
US Markets
US shares closed higher on Friday, with prices continuing to drift to the upside, despite a notably slower pace of gains. There was a lack of major US economic data on Friday, so instead, prices continued to rise on the narrative that interest rates have peaked, and that the next rate move will be an eventual rate cut. Still, US shares have seen ridiculous buying across the past month, so we would expect to see some profit taking soon. It is another fairly quiet week for major US data, but we will see the release of the Fed meeting minutes on Wednesday, which could trigger movement.
Six of the eleven sector groups of the SP500 closed higher on Friday, with Energy the strongest performer as oil rebounded. Communications stocks saw the most selling.
Technically, the SP500 may be stalling out around the 4,500 – 4,520 level, which was resistance in August and September. Should the index pull back from here, it could return to historical support levels around 4,450 or even 4,400. Overall the momentum does seem to be strongly higher at the moment, so higher peaks and troughs over a more medium to longer term could be expected.
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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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