Fresh highs again after strong US earnings

The XJO is expected to open higher this morning following a renewed rally in the U.S overnight. Their futures have moved into the green.

The rally in the U.S was largely across the board rather than be limited to just tech and tech adjacent sectors – and so our market will feel comfortable pricing in the gains this morning with an expected open near 8,050. This flirts with the recent highs, and if we don’t push through today, we will instead reinforce this level as the new key resistance.

It’s a risk on environment in the short-term as caution is thrown to the wind. Even our breather yesterday showed little desire to profit take as we are caught up in our hype of having finally done something other than track sideward in a channel. How long this fervour will last is hard to say, but our market is overbought by short, medium, and long term indicators and due for some mean reversion. We have employment data tomorrow – perhaps that will be a sobering reminder of the reality of our current economic and monetary policy environment.

Regardless, we must trade what we see, but it is hard to justify entering bullish trades at these levels. It is as equally hard to justify trying to pick the top of these markets. For much of the past few months the index has been favourable to trade, but at this stage, individual stocks are likely to present more opportunity whilst we wait and see what the XJO does from here.

US Markets

US shares closed higher again overnight, with another record high reached for the SP500 index. However, shares pulled back throughout the later parts of the session, with the SP500 eventually closing below its opening level. US markets were pushed higher again after Fed Chair Jerome Powell again spoke overnight and again pointed to rate cuts towards the end of the year, stating that if the Fed waits for inflation to hit the 2 percent target, they have waited too long. Markets also seemed to applaud the looming landside for Donald Trump in the Presidential election. This is because Trump seems to measure success in the strength of the stock market and previously enacted policies that benefit large listed companies. US markets seem to be enjoying almost goldilocks conditions, but prices are extremely high at current levels and even if everything goes right, earnings will struggle to justify the current levels. The US earnings season has just begun, with Goldman Sachs reporting a good result overnight, while Blackrock disappointed.

Nine of the eleven sector groups of the SP500 closed higher overnight, with Industrials the strongest performer, followed by Materials, Healthcare, Discretionary, and Financials stocks. Communications and Technology stocks were the only ones to close lower on average.

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