The XJO is expected to continue lower this morning following a pullback in the U.S last night and their negative futures this morning.

Yesterday, selling led to a test of 6,900 which we rebounded from intraday to finish just below 6,950. This morning our open will test 6,900 once again. This represents the yearly lows for our market and the bottom of the broader channel.

Overnight, the U.S reached their key support at roughly 4,200 and clearly stalled at the 200 day MA. Hopefully our market will wait to see whether they will break lower or not before committing to a break of 6,900. It seems likely at this stage that we hold this morning, however if U.S futures herald a continued selldown our market may dip below 6,900 in anticipation.

Ultimately, we should expect the bottom of our broad channel to hold considering messaging hasn’t changed significantly. The RBA kept rates on hold yesterday, and central banks are largely committing to a wait-and-see stance on further rises. It is still expected that rates locally and the U.S will rise perhaps one more time before the year is out, with the solidification of this belief fuelling the bearish sentiment underpinning markets.

If 6,900 were to fail in a meaningful way, then 6,800 is roughly the next key target.

US Markets

US shares closed lower overnight, with each of the three major US indices closing strongly in the red. It came as bond yields continued to push higher, with investors pricing in further rate rises and higher for longer interest rates. US economic data also continued to come in strong, with more job openings than expected, and with a drawdown in US oil inventories, not what bullish investors want to see. Finally, Federal Reserve Bank of Cleveland president Loretta Mester stated that she would likely vote for another rate rise at the November Fed meeting if the US economy remains as strong as it was in September. Overall, things are not looking good for equity markets at the moment, and there is little in the near term that seems like triggering a rebound. Possibly the US unemployment read on Friday could trigger a rebound, if US unemployment rises, but unemployment is actually expected to fall at the reading.

Ten of the eleven sector groups of the SP500 closed lower overnight, with only Utilities closing in the green, as they recovered somewhat from Monday’s extreme selling. Every other major sector closed lower, with Discretionary the worst performer, followed by Real Estate, and Technology stocks.

Technically, the SP500 dipped below the support around 4,250 overnight, though it did bounce from the 200-day moving average which sat just a few points below this level. Overall the index is definitely in a downwards move, but its hard to say where it will find support. However, there are plenty of potential levels between 4,200 – 4,250, so it may have to close below 4,200 before another leg lower is triggered.

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