The XJO is expected to edge higher on open this morning following a continued rally in the U.S on Friday. Their futures have also edged into the green.

The U.S is showing extraordinary strength, having rallied roughly six per cent over the past five sessions. On one hand, this instils confidence that the bulls have returned. On the other hand, there will surely be profit taking coming in soon, and even though our friends in the U.S are having a great time, our market likely remains cynical. Their rally could be argued to have been built on bravado that the U.S is indeed at peak rates – a sentiment the Fed has not indicated to support at this stage. Furthermore, our own monetary policy environment likely begs for another rate rise before the year is out. We have an interest rate decision from the RBA tomorrow at 2:30pm (AEDT), where it is reasonable to expect both another rate rise and a cautionary tone from Bullock.

We should test 7,000 key resistance on open. It is hard to suggest we will push through today without seeing further strength from U.S futures during our session. Furthermore, there is a clear downtrend line which also comes in at roughly 7,000 which reinforces the resistance. With an RBA decision tomorrow, and a U.S that looks overbought in the short-term, our market will likely feel reluctant to make too much headway today.

Finally, we need to remember that despite the recent strength, our market is still trading in a downtrend. The U.S looks like it is too, and if you were to argue the recent rally puts it back at its most recent peak, thereby weakening the downtrend, they still need to contend with a key level of resistance at roughly 4,380. If we do manage to push through the downtrend line, then roughly 7,050 – 7,100 is likely the next key level of resistance and roughly where the 50 day MA comes in.

US Markets

US shares closed higher again on Friday, with each of the three major indices closing in the green. Prices continued their recent strength to push higher, but they did see some minor late selling that dragged them slightly off their highs. The world’s largest listed company, Apple, opened firmly lower after announcing earnings, but it rallied throughout the session to close roughly flat. US shares have been powering higher on the belief that interest rates have peaked, which was supported by Friday’s unemployment report, which showed a slight rise in unemployment, with fewer jobs created than expected. Rising unemployment is a sign of a slowing economy, which could lead to inflation cooling further. Overall, US investors have had all their hopes answered this week, which has pushed their markets higher, but they have enjoyed quite strong upwards movement over a short period of time; therefore don’t be surprised to see some profit taking creep in this week.

Ten of the eleven sector groups of the SP500 closed higher on Friday night. Energy stocks were the only stocks to close lower after selling in oil. Real Estate was the best performing sector, followed by Materials, Communications, Financials, and Discretionary.

Technically, the SP500 has broken higher across the past week, with strong bullish movement raking the index back to near the peaks of October. After such a strong rebound, a breather and some profit taking should be expected soon. We will now be waiting to see if the index sets a higher or lower peak, there is still a downtrend in play and the index will have to set a peak above 4,385 before the downtrend looks like breaking.

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