The XJO is expected to open lower again this morning following a pullback in the U.S overnight. Once again, their market managed to retake much of the intraday losses, however our market is looking for any excuse to sell at the moment.

It is becoming clear that a short-term countertrend has formed since our peak a few weeks ago. There is also an underlying uptrend line in play which we are set to converge with on open this morning. This ultimately means our market is trading in a pennant pattern. Typically, we would expect the underlying uptrend to win, and for the countertrend to break. However, with weakness in our miners, and cracks showing in the U.S, it is hard to say with any certainty.

Our market has certainly disconnected from the U.S, with even their move last night being the equivalent of our market trading near 7,550. We have fallen three per cent from our peak (not considering today’s expected move). The U.S has barely fallen half of that. However, if the U.S continues their move lower, it is certainly within the nature of our market to extend the losses, even though one could fairly say that we have already had our share. To hold ground in the face of extended falls, we would at least need to see stability if not a rebound in iron ore prices.

7,350 is a key level of support. Don’t be surprised if we hold it and the uptrend line today as we wait and see how the U.S continues to move. We have local unemployment data today. It is largely expected to remain sticky around 3.9%. Obviously, we don’t want to see that number fall.

US Market

US shares saw moderate selling again overnight, with each of the three major indices finishing in the red. The move came with further strong US economic data, with Retail Sales coming in stronger than expected. Investor do not want to see strong economic data at the moment because it decreases the likelihood of rate cuts in the short term. The data follows stronger than expected CPI growth for August and as a result, the chances of a March rate cut as predicted by the bond market has fallen from 76% last week to around 57% as of today. The real test for rate cut probability will come at the end of January with the Federal Reserve meeting, where they will likely signal their intentions for the March meeting. Company earnings is also ongoing, with a handful of medium sized companies reporting overnight, most of whom closed lower on the results.

All eleven sectors of the SP500 closed lower overnight, with Discretionary, Utilities, and Real Estate stocks seeing the most selling.

Technically, the SP500 has dropped from its all-time high resistance level and it is threatening to record a double-top pattern from that level. We would need to see a break below 4,700 for this to be the case, which would indicate a move to 4,600. Currently the index is sitting around one percent above the 4,700 level after two sessions of selling, we will need to watch to see if that level holds or breaks in the coming sessions.

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