The XJO is expected to come back down to about 7,400 index points today following selling in US markets overnight, though their futures have gone modestly into the green since their close.
Our market has been flying higher following the lower-than-expected CPI (QoQ) reading on Wednesday and yesterday we rallied back to 7,450. Today we are likely to come back to 7,400 and may either hold it as support, or break below – which would potentially suggest further selling.
The next major test for the Australian market will come with next Tuesday’s RBA rate meeting. This meeting is a live one, and they could decide on another 25 basis point lift, though many investors are expecting them to wait following the CPI reading. CPI is still extremely elevated however, so a lift here shouldn’t be ruled out. Should they lift next Tuesday, our market is likely to see selling, while a hold on rates could trigger buying.
If we do see some selling, then 7,280 to 7,300 is the next clear support. This could be caused by a rate rise, or even by U.S selling, given how overbought they look. If we continue higher, we’d need to close above 7,450 for further ganis to look likely.
US Markets
US shares closed lower overnight, with each of the three major indices finishing in the red. The lower close ends the run of strong bullish gains for the DOW JONES index, which had closed higher for 13 sessions in a row. The lower close comes on the back of strong US economic data, which suggests a possibility that interest rate rises aren’t over just yet, especially given that oil prices are heading back up. Overall, US markets have been extremely strong on the assumption that interest rates are at their peak. However, recent economic data suggests a chance that inflation could reaccelerate, which would mean more rate rises, something that would be terrible for the market. Its too early to say if this is the case, but with US share prices at 16 month highs, many investors aren’t taking the chance and are simply selling to lock in gains.
Ten of the eleven sector groups of the SP500 closed lower overnight, with Utilities the weakest performers, followed by Financials. Communications were the only stocks to close higher on average.
Technically the SP500 reversed from the potential resistance level at 4,600 overnight. The index remains on an overall uptrend but after some extremely positive recent movement, don’t be surprised to see some profit taking and a bit of a pullback. Should the index fall from here, recent resistance at 4,450 may now act as support.
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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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