The XJO is expected to open flat this morning despite a small recovery in the U.S last night and their meekly positive futures this morning.
Yesterday we had a stronger sell off than both what our futures yesterday morning were indicating, and what one would typically expect from a slow previous night in the U.S. It seems the recent bull run was too optimistic. Profit taking saw the market back down to roughly 7,200, and back below both the 100 and 50 day MAs. The 200 MA comes in at roughly 7,130 which is also where the uptrend line comes in. 7,150 is a key support, and combined they make a reasonable target in the short-term.
Overall, its hard not to expect our market to continue channeling sideward for the time being. 7,100 to 7,150 marks the floor, and 7,300 to 7,400 markets the ceiling. A combination of both economic data, monetary policy and U.S trading is what will help us move outside this range – but this could be weeks away or longer. The recent increase in volatility over the past week or so has picked up our momentum, and if sustained could lead to a break sooner.
US Markets
US shares closed mostly higher overnight, with the NASDAQ and SP500 closing in the green, while DOW JONES finished flat to lower. The moves came after further testimony from US Fed Chair Jerome Powell, who today restated that he saw at least one, if not two more rate rises this year. However, he also reiterated his view of a soft economic landing. There was also a significant rate rise in England, with the Bank of England conducting a 0.50% rate rise overnight, which started US shares in the red for the session. US economic data continues to be mostly positive, with Home Sales better than expected overnight, while there was a drawdown in US oil inventories. However, there was also an unexpected tick higher in Jobless claims. Tonight we will see many more Fed members come out and deliver their opinions on monetary policy, as well as an important services PMI reading.
Six of the eleven sector groups of the SP500 closed lower overnight, with Energy and Real Estate stocks the worst performers, after falls in the oil price and in house prices. Discretionary, Communications, and Technology stocks were the best performers.
Despite a few days fluctuating lower this week, the SP500 remains on a strong uptrend, with prices powering higher. The index may have found some resistance around 4,450 on Friday however, so this level will have to break for further gains to look likely. Should some profit taking continue, the recently broken 4,300 resistance level may act as support on a downside move.
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Sam Green is the Portfolio Manager at Emerald Financial, whilst also being an Equities and Derivatives expert for his clients at TradersCircle.
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