The XJO is expected to jump strongly higher this morning following a strong positive session from US markets on Friday. Though US shares closed a fair bit off from their highs on Friday, their futures have pushed strongly higher this morning. Given all of this, our market is expected to open around the 8,000 point level.
US markets continue to power higher with a belief in rate cuts starting soon, but our market is in a bit of a different position, with a potential for further rate rises. On Tuesday of this week we will see Australian inflation data released and if the growth is strong (4%+), we will likely see an RBA rate rise at their next meeting which is Tuesday next week. Should this eventuate, we would expect strong selling from Australian shares.
Technically, this morning we should break above our short-term counter-trend downtrend line, which could indicate further upwards movement. The key levels to watch now are the all-time high resistance at 8,080. Should we hold below that level, that would be a double top or lower peak for our market, which could indicate a bearish reversal, while a breakthrough would indicate further upwards movement.
Australian shares are also starting a reporting season this week, with RIO the first cab off the rank on Wednesday night. The season wont really start in earnest until next week however.
US Markets
US shares jumped strongly on Friday, with each of the three major indices closing strongly higher. It was again the DOW JONES that saw the strongest movement higher. In general, US markets have everything they could ask for, with interest rate cuts expected from September, while the economy is holding fairly strong. Now, the rally that has mostly been driven by technology stocks has broadened to other parts of the market. Boosting the market on Friday was a measure of inflation (PCE) continuing to drift lower. There will be a Federal Reserve meeting on Wednesday night and the Fed is expected to hold rates, but indicate rate cuts at the coming meetings.
All eleven sector groups of the SP500 closed higher on Friday, with Industrials and Materials the strongest performers, followed by Real Estate stocks. All other sectors saw notable gains however.
Technically, the SP500 seems to have found some support around 5,400, which is bounced off on Friday, continuing in the overall upwards movement. There may still be a short-term downwards counter trend in play, but one more positive session would be a strong bullish signal and would likely indicate a move back towards the all-time high resistance at 5,670.
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Sam Green is the Portfolio Manager at Emerald Financial, whilst also being an Equities and Derivatives expert for his clients at TradersCircle.
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