The XJO is expected to edge lower on open this morning following a flat night in the U.S which saw their market hold their key resistance. Weakness is also likely stemming from their negative futures this morning.

Yesterday we had a strong rally to follow the U.S’s extraordinary break higher on Tuesday night. Their market had rallied about ~2%, however our market only managed ~1.5% yesterday, likely held back by key resistance at roughly 7,100. This morning we should fail it, with an expected open near 7,080 at time of writing.

Despite the vindication of the lower-than-expected CPI reading on Tuesday night, markets still look toppy in the short-term. The U.S for example, has rallied almost 10% from their lows over the past few weeks. Our market has tried to follow, rallying about half of that, but we remain in a different monetary policy environment, and typically aren’t as unashamedly optimistic.

We should expect some profit taking soon, however there could easily be another leg up. Trying to pick a top is as equally difficult as picking a bottom. Considering both our market and the U.S are holding resistance, we could easily see a healthy sell off soon. However, if we manage to push through, then 7,150 to 7,200 and where the 100 and 200 day MAs come in is a healthy target.

We have local employment data today. Our market will want to see higher unemployment.

US Markets

US shares closed slightly higher overnight, with prices initially trading higher before coming back to close fairly flat. Overall, prices have jumped extremely strongly across the past month, so something of a breather shouldn’t be unexpected. There was a bevy of US economic data overnight, with Retail Sales coming in slightly stronger than expected, while producer prices were lower than expected. Markets definitely remain positive after the recent lower than expected CPI reading and investors are predicting no more rate rises this cycle. However, prices can’t rise continually forever and profit taking and breathers shouldn’t be unexpected.

Seven of the eleven sector groups of the SP500 closed higher overnight, with Staples and Communications stocks the strongest performers. Utilities and Energy stocks saw the most selling, but movements were small.

Technically, the SP500 may be stalling out around the 4,500 – 4,520 level, which was resistance in August and September. Should the index pull back from here, it could return to historical support levels around 4,450 or even 4,400. Overall the momentum does seem to be strongly higher at the moment, so higher peaks and troughs over a more medium to longer term could be expected.

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