The XJO is expected to rally on open this morning following a rebound in the U.S on Friday night which saw their market retake the previous session’s losses.
The past few sessions of movement for the XJO have been fairly indecisive. We have retraced both intraday losses and given up intraday gains, but have ground marginally higher with perhaps careful optimism that the U.S will continue their strength. U.S futures during our session have certainly helped play a role in influencing our intraday moves too. The U.S is practically back to their all-time highs, the levels they were trading at prior to their recent correction. Our market has cautiously tried to follow suit, with an appropriate amount of scepticism to see whether the U.S will push through or rebound lower.
We should open near 8,050, which is a fraction higher than the recent consolidation range. This is also a level of resistance we will contend with today. Beyond that we have the next major level at roughly 8,100 which practically represents the all-time highs for our market.
Both our market and the U.S look overheated in the short-term, and the past few sessions of consolidation show the buying fatigue after the U.S had the most consecutive higher days in twenty years. Simply put, the steepness of this rally is not sustainable, even with the short-term consolidation. The short-term stochastic are also well into the overbought territory and are trying to cross. However, positive sentiment is quite clearly underpinning markets, supported by dovish statements from the Fed. Markets could easily push higher from here, challenging our previous all-time highs, even setting new ones, before the mean reversion or profit taking comes in. In support of this, since roughly the start of the year, most, if not all the major peaks we have seen before proper selling have had our market about seven to eight per cent away from the 200 day MA. Our market only sits about five per cent away, with seven to eight per cent away being about 8,150 to 8,200 – a reasonable target in this bull market.
Markets will remain sensitive to macroeconomic data releases that will help shape opinions of both the future of monetary policy but also the health of the economy. A careful balance between the hype of rate cuts, but also the fear of recession is a tight rope walk that markets have managed to balance so far.
The first half of the week is fairly quiet. The largest news is likely the U.S GDP numbers on Thursday night which are expected to come in steady at 2.8%. On Friday we have local retails sales numbers which are expected to remain steady at 5%. On Friday night the U.S has PCE data.
Finally, we are still amidst company reporting, with another full week. Be sure to double check any potential upcoming reports before you enter any positions. Reporting strategies are worth pricing up, please call if you would like some assistance.
US Markets
US shares jumped higher on Friday after the Federal Reserve’s policy symposium. The gains came after Fed Chair Jerome Powell stated “the time for rate cuts has come” and that there would be a low bar for further easing from here. Markets were a little panicked that the rate cuts were coming too late, after a bad unemployment reading. However, Powell and other Fed members have constantly reasurred markets that they would be aggressive in cutting rates to achieve a soft landing. The Fed needs to be careful here, because a rebound in inflation would be the worst case scenario at this point. Regardless, markets remain happy to buy up on the dovish Fed, despite being quite overbought and expensive at the current levels. The next few days will be fairly quiet for data as well, so its hard to see something going awry in the short-term.
All eleven sectors of the SP500 closed higher on Friday night, with the rate-sensitive Real Estate, Discretionary, and Technology the best performing sectors. Most sectors saw moderate buying.
Technically, on Friday the SP500 regained the losses from Thursday’s session, though it was unable to exceed that high. The index does remain on an upwards movement, but it will first need to exceed that level at roughly 5,635 before further gains will look likely. Should we see the market rise beyond this level, the next level, the all-time high resistance is not too far away at 5,670.
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Advisor at TradersCircle and Emerald Financial
Joining the team at TradersCircle in 2011, Karo has extensive experience in both investing education and derivatives trading.
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