The XJO is expected to open flat this morning, following another night of indecisive trading in the U.S on Friday. Their futures have edged into the red.
Ultimately it seems markets are consolidating as they grind along their key supports. For the U.S, that level is roughly 4,700. For the us, that level is roughly 7,480.
7,480 is a key level of support as not only is it the most recent support on our recent run up, but also historically a key level of resistance. It seems likely we hold this level until we see the U.S commit one way or another.
If we fail here, then roughly 7,400 is the next key level, and then 7,350 after that. There is also an underlying uptrend line that comes in at roughly these levels that could easily prove to be the short-term target if selling persists.
If buying returns, then we could have another crack at our all-time highs, which come in just above 7,600. Be mindful this could set us up for something like a double-top reversal pattern.
The news mill is unsure how to process the current economic and market climate. It is a lazy start to the calendar year and of course the general buzz is on how 2024 might play out.
The recent pullback seems justified purely from the fact that the recent run up was unsustainable and that markets were simply long overdue for some profit taking. Coupled with a quiet holiday period, lighter volumes, and a non-comital vacuum – the consolidation makes sense.
However, the news mill is reporting an emergence of two key camps in respect to the 2024 calendar year for markets. One that is cautious, due to monetary policy outlook, inflation, and key elections (particularly the U.S). And the other that is optimistic, largely built on the belief that the Fed has achieved a soft landing and that we could be seeing U.S rate cuts as early as May. Indeed, the recent U.S jobs data was mixed, offering something for both the hawks and doves. It showed that labour markets are resilient, which could imply a soft landing, but could also imply a delay in rate cuts.
Sentiment will remain data-driven, like it did through all last year. Tomorrow, at 11;30 (AEDT) we have local retail sales numbers, which are expected to strengthen slightly. This shouldn’t be too concerning as the numbers are expected to remain fairly flat. The rest of the week is fairly quiet in regard to key economic reporting, except for the big release on Thursday night – U.S CPI.
With markets typically returning to normal volumes over the next week as people return from holidays and awaken from Turkey and wine induced sleep, their will be plenty of eyes looking at the first 2024 CPI reading. Expect markets to be sensitive to any revelations or interpretations. It seems likely to set the tone for the first spat of 2024 trading and give credence to either the doves or the hawks.
US Markets
US shares closed slightly higher on Friday, ending a run of four straight losses. Prices were firmly higher at points in the session, but shares pulled back to close fairly flat. The US jobs report on Friday came in stronger than expected, and while this does suggest that the economy is in a better state than expected, it also suggests that inflation could prove to be stickier than expected. Should inflation remain stickier than expected, we could see interest rate cuts pushed out longer than expected. Given than markets have rallied strongly on the belief than interest rate cuts will come soon in 2024, this unemployment reading isn’t so great for share prices.
Eight of the eleven sector groups of the SP500 closed higher on Friday, with Financials and Utilities the strongest performers. Staples stocks saw the most selling.
Technically, the SP500 is holding right at the level of support around 4,700. Should the 4,700 level break definitively, we could see a move back to 4,600. Overall the index remains on a strong uptrend so we are just looking to see if the where the index will record its trough.
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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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