The XJO is expected to edge lower on open this morning following U.S markets on Friday night that managed to close slightly higher after retaking intraday losses. U.S futures are also in the green.

With the U.S pausing on Friday, but managing to hold ground, our market will be inclined to do something similar today. Of course, if U.S futures push hard one way or the other, we will start pricing in their expected overnight move, but otherwise it should be a fairly mild day.

Markets have had a strong run from the recent lows. The U.S has gained about eight per cent, and we have gained about half of that. In fairness, the U.S corrected about ten per cent from their highs, and we also only fell about half of that too.

Regardless, markets are likely due for some profit taking as we would expected buyer fatigue to make for some selling. Key levels for our market are almost every 50 points. 8,000 and 8,050 are the next key levels of resistance. 7,950 is a key point for our market too, and 7,900 and 7,850 mark the next key levels of support. 7,850 is also where the 50-day MA comes in.

Both our market and the U.S looked overheated for a good while, and the correction was due – but now that we have returned to the 50-day MA after virtually rebounding off the 200-day MA, markets have, by those metrics, returned to a healthy equilibrium. This puts a different light on that big selldown from “concerns about U.S and Japan” (which tabloids like the AFR plastered across their from page) to a simple correction and healthy mean reversion. This paves the way for continuing the positive sentiment that has underpinned markets for the past ten months or so.

Ultimately, though markets look a bit tired in the short-term, we should continue to expect positive sentiment to underpin the broader moves. This is likely to remain the case for as long as U.S macroeconomic data remains in the goldilocks range – not too hot (that rate cuts are delayed), not too cold (that a recession is coming).

Locally, we must consolidate the realities of our own economic situation, whilst wanting to follow the U.S. They are moving towards cuts, however our market is moving towards stagflation and possible rate rises. Even though we may want to follow them higher, our market may simply not be able to justify holding ground after doing so.

Employment data last week was slightly stronger than expected. We remain at virtually full employment and there were more jobs created than expected. This is literally the opposite the RBA wants to see. Tomorrow, minutes from their recent meeting is likely to reaffirm their position from the past few meetings which has simply been “nothing is off the table, we will continue to monitor”.

Fed members are speaking throughout the week, with Powell talking on Friday night. On Wednesday night, minutes from the last Fed meeting will also be released – we would expect it to be appropriately dovish.

We are also in full reporting swing. It may be worth pricing up strategies on ANN for tomorrow, or ILU, STO, IAG, WTC, TLC, and BXB for Wednesday. Please call us if you would like help.

US Markets

US shares closed moderately higher on Friday, with each of the three major indices seeing modest gains. Prices initially opened lower but they managed to grind higher to close slightly above Thursday’s finish. US shares have closed higher for seven sessions straight and they have now mostly recovered from the selling after the worrying unemployment report. Any report from here that points towards the possibility of recession will likely trigger big falls for the US market, but in the absence of these reports, prices look poised to grind higher. Economic data was mixed on Friday, but importantly it was minor data and wasn’t recessionary. This will be a fairly quiet week for US data, until Thursday at the least so its possible prices tread water here.

Eight of the eleven sector groups of the SP500 closed higher on Friday, with Financials the strongest performers, though the gain was small. Most sectors closed fairly flat.

Technically, the SP500 has now returned to its previous peak at roughly 5,550 index points. Should the index rise through this level, we should see a move back to the all-time high around 5,670. Should the index fall from here, there is a short-term uptrend line at roughly 5,520 and some support at 5,500 – should those levels break, we could see strong further selling.

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.