The XJO is expected to extend the losses from last week on open this morning, following another strong pullback in the U.S on Friday.

Scares around U.S recession have flowed directly into our market, with our futures set to open near 7,775 at time of writing. This sheds practically all of July’s gains and puts us back into the consolidation range that dominated our index for several months.

There is a broad, shallow, underlying uptrend line potentially in play that comes in roughly at 7,750. There are also plenty of key levels of support around here, and the 100 and 50 day MA come in at roughly 7,775 to 7,850.

We will need to watch the futures closer to open. U.S futures have also moved into the red, which our market has likely priced in. It would be surprising to see the U.S futures move harder into the red considering the large falls they have already experienced. Therefore it seems more likely than not our market sees most of its losses on open, with some stability if not recovery through the day.

Sentiment has certainly turned on a dime the past couple of sessions. Our gains were simply driven by the U.S. Their gains were simply driven by the promise of interest rate cuts, but also a “soft landing”. It is unclear as to whether their market believes that the Fed has been too slow to cut interest rates, or if this slew of selling is warning to the Fed they better promise another cut this year or deliver one sooner. It wouldn’t be the first time their market has held itself hostage.

Markets, of course, remain sensitive to key macro-economic data releases. On Tuesday we have our own RBA statement and rate decision. It sems likely that the future guidance is a simple copy and paste from the past two statements – “we will wait and see, and nothing is off the table”.

US Markets

US shares fell further on Friday, with the turnaround continuing after Friday’s US jobs report came out worse than expected, with unemployment jumping to 4.3%. The weakening economic data is causing some concern that the US could be headed towards recession, and that the interest rate cuts on the horizon could come too late. US shares are also starting to face a downgrade to earnings expectations, which is further putting prices under pressure. Finally, there has been an escalation in tensions in the middle-east, which threatens a regional war in that part of the world. Given that shares are historically expensive, with all this going on it is unsurprising that many have decided to hit the sell-button.

Three of the eleven sector groups of the SP500 closed in the green on Friday, with only Staples seeing notable selling. Discretionary stocks saw the most selling, followed by Financials and Energy stocks. Most sectors saw notable selling.

Technically, the SP500 broke below the support at 5,400 on Friday and fell towards the next major level around 5,330. This is a break of the longer-term uptrend line, though the index is still on uptrend (just without a line). Possible target support levels include the current level around 5,330, and then a potential support at 5,250 if that breaks. Should we see a rebound from here, the previous support at 5,400 could act as resistance.

Want to learn how to trade?

The team at TradersCircle/Emerald Financial have released a free online stock market education course, click here to enrol and get started.