Lower open expected after record string of gains

The XJO is expected to open lower this morning following a strong pullback in the U.S overnight. Their futures are slightly in the green.

We have tracked largely sideward over the pat few sessions, likely waiting to see whether the U.S would break through their all-time high resistance or fail and rebound off it. With their clear rebound last night, our market’s caution has been vindicated.

We should open near 8,000 key support. If U.S futures remain in the green, it seems reasonable to suggest that most of the falls will occur on open or during the morning session. Don’t be surprised though if we retrace our lows. The pump in the U.S is on – the strongest run they have had in twenty years. Last night could easily be bought up again. Our market is likely aware of that, and may not feel comfortable selling off too much.

There is a strong argument for some proper profit taking, but there has been for a while, and the bears must be getting tired of being wrong. Last night’s pullback was a nice entry signal, and it wouldn’t be surprising to see a continued selldown tonight, but keep in mind these have been short-lived – albeit sometimes aggressive.

US Markets

US shares closed lower overnight, with reasonable selling across all three major indices. Shares pulled back ahead of Jerome Powell’s speech at the Jackson Hole symposium tonight. Many are expecting Powell to be extremely bullish and dovish, as he has done all this year. However, many in the market have likely gotten well ahead of themselves in terms of how dovish he may be. Many are calling for or predicting one percent of rate cuts by the end of the year, starting with 0.50% in September, something that seems extremely unlikely given that inflation is still well above target range and other economic data is only just slowing. Given that markets seem to have gotten a bit ahead of themselves, they pulled back a bit overnight, though whether they fall further tonight will come down to Powell.

Three of the eleven sector groups of the SP500 closed higher overnight, with Real Estate the strongest performer, followed by Financials stocks. Technology, Discretionary, and Communications were the weakest performers.

Technically, the SP500 did show a bearish signal overnight, breaking below the short-term uptrend that has formed acorss the past fornight. Technically, this would suggest a move back towards at least 5,450, which was a sticking point on the way up. However, with tonight’s major Federal Reserve event, we could see these technicals disrupted. To the upside, the level to watch is the all-time high at 5,670.

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