Back to all-time highs?

The XJO is expected to open higher this morning following another strong night of gains in the U.S. Their futures are flat.

The U.S is unashamedly rising in the face of stronger than expected economic data, and we are being dragged kicking and screaming along with it. Our market recently has been skeptical of the U.S strength. As it continued to make fresh highs, our market tracked sideward, waiting, and watching for their overbought market to see some warranted profit taking and mean reversion. For a brief moment, our skepticism was vindicated when their CPI came in stronger than expected, swiftly pulling their market back. It was short-lived however, and their kneejerk down has been met with unabashed strength, causing our market to have no alternative but to follow it higher.

We should open near 7,700 and retest our recent all-time highs. It seems unlikely we push through today, especially considering the U.S is now also trading close to their all-time high resistance. However, if U.S futures push into the green, we could push through in expectation of their market breaking higher.

The move higher this morning will have our market continuing the bounce from the uptrend line. It will signal a break of both a pennant and flag pattern. If the flag plays out to completion, it will indicate a move to roughly 7,800. However, these types of patterns are rougher when it comes to indexes. Of course, we would want to see a break of the all-time high resistance, but it would be hard to look at this market and not simply be in awe of the bullish momentum.

US Markets

US shares pushed higher again overnight, with prices returning to roughly the all-time high from just before their CPI announcement. It seems that rate cuts being pushed out has done little to shake the current extreme confidence in the market. Additionally, overnight data showed that Japan and the United Kingdom are now in a recession, which may have boosted hopes that despite the current strong US economic data, eventually weak global economic performance could slow the US down as well. Overnight, weak US retail sales data also boosted hopes around rate cuts, with retail sales falling 0.8% in January. Currently, US strength seems unshakeable, and its hard to say what could cause a turn around – generally when US markets are as strong as they are, a turn around is seen when the market closes lower after positive news.

Ten of the eleven sector groups of the SP500 closed higher overnight, with Energy, Real Estate, Materials, Financials, and Utilities the strongest performers. Technology stocks were the only ones to close lower on average.

Technically, the SP500 bounced back to the all-time high around 5,050 overnight, and we now need to see this mark exceeded before further gains look likely. Should this level hold as resistance, it could be a bearish sign, signalling a move back to 4,800. Should the index break above 5,050, we should see further upwards movement.

Want to learn how to trade?

The team at TradersCircle/Emerald Financial have released a free online stock market education course, click here to enrol and get started.