Further selling expected as US markets suffer worst day in months

The XJO is expected to open lower this morning following a pullback in the U.S overnight.

We are likely to test and hold key support at roughly 7,280 to 7,300 this morning. U.S futures have moved into the green and if they remain so during our session today it may translate to most of our falls occurring on open or in the morning session.

The U.S has been due for a pullback for a while now. It looks like they stuck their head just below support last night, meaning further falls are on the table – and of course our market will follow suit.

The sentiment underpinning our market over the past week or so has significantly improved. Although there have been large whipsaws of volatility at the top of the range, the RBA rewarded the market with a pause on interest rates for the low inflation reading last week and giving the market something to be hopeful about. Previously, we were reluctantly rising alongside the U.S, and falling heavily with any whisper of uncertainty. Now it seems we are as equally aggressively bullish as we are bearish depending on how they move overnight. This sentiment can turn on a dime however, and if our market sniffs a proper pullback or even a correction overseas, there won’t be much that stands in the way of the selling (though there is no real signs of this at this stage).

Overall, keep a close eye on things. 7,300 to 7,280 should hold today, but if the U.S continues to look bearish, then don’t be surprised if we see 7,200 to 7,250 again. This is where the convergence of the 50, 100, and 200 day MAs come in, and represents a point of safety for our market in the short to medium term.

US Markets

US shares closed firmly lower overnight as each of the three major indices saw selling. It was the worst day for the S&P500 index since April, with selling in every corner of the market. US markets may have seen selling after US government debt ratings were downgraded by ratings agency Fitch, though this is unlikely to have any real-world effect in the short-term. Worryingly, economic data came in really quite strong overnight, with a massive drawdown in oil inventories and with a large number of jobs created. These data points are potentially inflationary, and could be early signals that the battle against inflation isn’t over just yet. Following these data points, government bond yields pushed higher, potentially suggesting that the market is starting to consider the possibility of more rate rises. Indeed, the yield on US government 10-year bonds rose to the highest level since November 2022. The next 24 hours will be massive for US markets in determining whether they continue to sell off from here. We will have major earnings reports from Apple and Amazon, and we will also see the full US unemployment report. Any of these events could trigger large directional movement.

Nine of the eleven sector groups of the S&P500 closed lower overnight, with Technology, Communications, and Discretionary stocks seeing the most selling. Most other sectors closed notably lower, though Consumer Staples, Healthcare, and Utilities stocks were all flat to slightly higher.

Technically the S&P500 has clearly held below the resistance level at 4,600 and has shown a bearish signal. The index remains on an overall uptrend but don’t be surprised to see some profit taking and a bit of a pullback. Potential downside targets for the move are the longer-term uptrend and the previous resistance which may now act as support – both of these lines currently sit around 4,450.

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