Prices continuing higher on peak rate hopes, XJO to jump

The XJO is expected to open higher this morning following a flat US overnight. Their futures are also flat. The fact they held gains despite what their negative futures heralded yesterday is likely giving our market the confidence it needs to perhaps start pricing in their break higher on Friday.

Our market held the consolidation range yesterday and retested the support at 6,950. We should bounce from it this morning to move back to 7,000 – a level our market has been hanging around for the past week or so. 7,050 remains roughly the top of the consolidation which is also where the 50 day MA comes in.

With markets tracking sideward, the chance of profit taking starts to reduce. Consolidation, as the name suggests, is the market taking pause and evaluating. Short-term indicators like the stochastic are starting to normalise and so if the U.S holds strength and continues higher, our market will likely follow suit, albeit in a more muted fashion. That being said, our market looks bearish with a classic break out of a pennant in the direction of the underlying downtrend.

US Markets

US shares closed relatively flat overnight, defying early negative moves in the futures to close higher. There was a lack of major economic data from US markets overnight, so instead prices continued higher with the current bullish momentum. The bullishness continues to come from the belief that US interest rates have peaked, and that the next US rate move will be an eventual rate cut. This belief will face a test tonight with the release of US CPI (inflation) data for October. Investors will want to see inflation continue to fall, otherwise we could see share market selling.

Five of the eleven sector groups of the SP500 closed higher overnight, with Energy the strongest performer, followed by Healthcare stocks. Utilities were the weakest performers, followed by Real Estate stocks.

Technically, the SP500 has broken above several key levels including the medium-term downtrend line and the resistance at 4,385. This break of trend is also a higher peak for the index and could be setting the stage for a change in trend. The index does look overbought in the short-term however, so some profit taking should be expected. The first potential resistance level to the upside is around 4,450 index points, while 4,385 may act as support on a pullback move.

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