The XJO is expected to open higher this morning following another night of gains in the U.S. Their futures have edged into the red.

Yesterday we stalled at 7,050 after a strong day of buying that persisted through much of the day. With the U.S holding its gains, our market wanted to catch up and join the party. This morning we should open near 7,080 which marks roughly the highs of the recent consolidation range we were trading in prior to seeing our lows at 6,900. 7,100 is also a key historic resistance.

In essence, there are key levels of resistance around here, and it would be hard to expect our market to push through. Gains in the U.S are being driven by mixed sentiment from Fed members on whether they have hit peak rates. The dovish comments from some have helped bolster sentiment in a market that was most likely expecting another rise before the year is out. However, there is a CPI reading on Thursday night and it would be surprising to see markets further over-commit before the release. With sentiment shifting from “likely one more rise” to “perhaps no more rises”, this reading will be key. If it comes in stronger than expected, we should expect a typical tantrum and a selldown.

From a technical perspective, it would be hard not to expect a small pullback or consolidation after such a strong rally from our lows. We haven’t run out of gas yet, and the CPI reading could well fill our tank back up, but our market typically doesn’t rally for more than six or seven days straight of decent gains.

In conclusion, we should expect the next couple of sessions prior to the reading to consolidate or take some profit, or by the very least, to show weak gains testing 7,100.

US Markets

US shares closed higher again overnight, as US government bond yields fell with investors once again betting on a peak in interest rates. US gains did fade somewhat later in the overnight session, after a Federal Reserve member stated that they weren’t ready to stray from the current tight monetary policy yet. Still, US markets are now pricing in a 70 percent likelihood that there will be no more rate rises this cycle, which is a large change from a week ago (roughly 50 percent). There was otherwise a lack of major US economic data overnight, and instead, markets are gearing up for the CPI reading on Thursday night. Overall, US markets seem to be bouncing from recent lows, and the momentum has shifted to the upside, it is now likely that it will take news or an event to stem this bullish momentum.

Ten of the eleven sectors of the SP500 closed higher overnight, with only Energy stocks closing lower on average. Utilities stocks were the best performers, followed by Materials, Discretionary, and Staples stocks.

Technically, the SP500 has recently bounced off the support levels at 4,250. Overnight the index broke above the resistance around 4,330-4,350, suggesting we should see a move back towards 4,400. Should 4,400 break, the next target to the upside would be the downtrend line around 4,440.

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