Overnight we saw the major indices in the US recover most of the move down in the previous, but the buying did not last. In the last hour, markets gave back around half of the day’s gains.
The noise from GameStop will likely just go away over the next week, with the sell-down yesterday in our market was an overreaction and any selling from here will just be fear. The other issue that could arise in the US from this is that IB and Robinhood restricted retail investors trading GameStop and other heavily shorted stocks.
But once again nothing in the backdrop has changed. US reporting has beat expectations, US FED is going to stay extremely accommodative, especially that the US missed on Quarterly GDP. Vaccine rollouts are on their way and do not forget more Fiscal Stimulus Aid.
Locally boarders will start to reopen again after the Christmas lockdowns. It is good to see things like the Australian Open go ahead. This shows progress to a better Covid normal, which all helps get the economy back on track.
The current volatility in the market creates opportunities for us, it is all timing and strategy. Our futures are up today but being a Friday, it will be interesting to see if we can hold on to it. The US gave back a lot of their gains yesterday, we are likely to do something similar.
Australian Outlook
The XJO is expected to rally on open this morning, following strong higher from the U.S last night. Our open should see us towards the top of the old channel near interim resistance at 6700. U.S futures have edged into the red, meaning most of the days move may be baked into the open. If they turn around during our session expect a stronger recovery.
The falls yesterday was a ripple effect likely caused by issues stemmed from the Gamestop fiasco. This will may have some effect on the market landscape in the U.S in the long term, but in the short term, the kneejerk seems to have played out now and hopefully things will return to normal. Besides this unusual turn of events, everything else remains on track for continued bullish movement. Sentiment remains positive, albeit a little bruised.
Technically, we of course have the top of the channel to worry about at 6750 once more, but this time around it may be different. The last move higher saw us make fresh post-fall highs, showing the market’s willingness to trade at higher index prices. Therefore, getting back above this level may prove less troublesome than it has in the past.
US Markets
US shares rose overnight, but pulled off their highs after several brokers including Robinhood and Interactive Brokers announced that they would close some client’s positions in highly speculative, large moving stocks. Still, all eleven sector groups on the S&P 500 moved higher overnight, with value stocks in the Financial, Basic Materials, and Healthcare space leading the charge higher.
There was also a plethora of economic data overnight, with US GDP in line with expectations, while New Home Sales were weaker than expected. Company reporting overnight saw Mastercard and Comcast report better than expected earnings, while McDonald’s reported weaker than expected earnings.
Tim Michaelides is the Head Trader at Emerald Financial Group.
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