Markets stabilise as they await important CPI reading

The XJO is expected to edge higher on open this morning. The U.S finished close to flat after rebounding intraday from their lows. Our market sold off quite heavily yesterday, and so with the U.S holding overnight, we should claw back some of the extended losses. U.S futures are also mildly in the green.

Yesterday was a larger sell off than many would have expected. It opened lower but kept descending late into the session. The falls were triggered by almost a four per cent fall in iron ore prices from the da li an futures during our session yesterday. This fed directly into our key miners. The XMJ sold off just under three per cent. Furthermore, the banks finally decided to profit take. The XFJ sold off just over two per cent. With both sectors making up over half our market, it wasn’t surprising to see us topple.

We moved straight to back to 7,700, which represents the previous all-time highs, and is now a key level of support. This is also where the uptrend line comes in, and with today’s expected open, we should expect a rebound from both levels.

The short-term stochastic came out of the overbought area and are pointing down. If we continue to pause around these levels, they will normalise without the market needing to sell off much further. Don’t expect a continued selldown based on this. Ultimately, the trend remains up, and we should continue to expect markets to rise.

If we do continue to move lower, then 7,630 to 7,600 is the next key level of support. Otherwise, if we see a rebound, then roughly 7,750 to 7,800 are the next key levels of resistance.

US Markets

US shares closed flat overnight, with the DOW JONES closing slightly higher, while the SP500 and NASDAQ closed slightly lower. It was a mostly underwhelming session, with prices initially trading lower before rebounding to close flat. US markets are likely waiting for tonight’s CPI reading before deciding on whether to resume the rally or to sell off further. CPI is a measure for inflation and it has proven stickier than expected so far in 2024. Should the CPI reading come in stronger than expected, US markets are likely to see additional selling which could lead to a break of the up trend lines that have formed. A lower than expected CPI reading will likely trigger a resumption of the rally.

Five of the eleven sector groups of the SP500 closed higher overnight, with Materials and Energy the strongest performers. Industrial and Discretionary stocks saw the most selling.

Technically, the SP500 is continuing along its longer-term uptrend line that has formed since October. On Friday prices continued higher again before pulling back, which could be a sign of a reversal signal. Should the index keep falling from here, the first downside target would be the uptrend line around 5,075; should that break we could see further selling. Should the index rise from here, the recent peak around 5,150 would have to break before further gains look likely.

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