The XJO is expected to edge lower on open this morning following a sell-off in the U.S overnight. Their futures are flat this morning which at least would indicate that the selling hasn’t extended yet.

Powell set the record straight overnight, pulling inline market pundits who have been buying up the U.S markets on the belief the U.S was at peak rates. This is what we had been waiting for, as the last Fed announcement was interpreted a little too generously by the bulls, when in reality, a chance of another rate rise or two is much higher than what the past rally would indicate. This will, of course, flow into our market.

The reality check last night may be the catalyst markets need to profit take after such a stella run. Our market is still trading in a downtrend, and is still likely holding the downtrend line. Yesterday we tried to peak above it but ended up rebounding off of the 50 day MA intraday to finish only marginally higher.

Our meek open isn’t a typical response to the serious move lower in the U.S overnight. However, both our market and the U.S is holding near the 50 day MA. There is a decent chance we sell down further than what our open indicates, especially if U.S futures show signs of weakness during our session today.

Overall, it would be hard not to expect the next broader move for markets to be back down towards our recent lows. The first stop off would be 6,950, then roughly 6,880. We may not reach our lows back down at roughly 6,750, for we cannot discount the recent optimism we have seen, but some healthy profit taking seems overdue.

US Markets

US shares closed lower overnight as the bullish momentum died and with investors taking profits after the recent strong bullish run. There was a lack of major news and events as well, and instead, prices looked to bounce down from key resistance levels. Minor comments from Fed members were seen as ‘tone correcting’ statements, but they largely confirmed the previous comments after November’s Fed meeting, that the Fed was not looking to raise rates from here. Supporting this view, there US jobless claims were slightly higher than expected last night. The key test for US markets however will come next Tuesday with the release of US CPI (inflation) data.

Every major sector of the SP500 saw selling overnight, with Healthcare and Discretionary stocks seeing the most selling, while Industrials and Energy saw the least selling.

Technically, the SP500 fell from the resistance (and also potentially the downtrend line) around 4,385 index points. This is an in-line peak with the one recorded in earl October, so its hard to say how the index will trend now. Look for a higher trough to be recorded, perhaps at 4,300 or 4,220, as a sign that the index is shifting towards a bullish trend.

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