Tech powers US rebound, XJO to open lower

Major US indices managed to reverse their early selling to mostly finish stronger overnight. Tech stocks powered the rebound and the tech-heavy NASDAQ index was the strongest of the major indices overnight. There were not a whole lot of major reporting stocks overnight in the US, but things ramp back up tonight with J&J, Netflix, Bank of NY Melon, and many others.

The XJO futures are pointing to a mildly lower open for our market. It could be that after several days of strong gains we need a breather, or that our market is finding resistance at 7,400 points. From a seasonal point of view, this is generally a bullish time of year and the gains are often helped by the US reporting season; as they have been this year. Issues still remain, such as the US debt ceiling, which was pushed out to December, the Evergrande debt crisis, which is in the process of playing out, and the tightening of US monetary policy.

Daily virus numbers worldwide continue to decline. Locally we have seen NSW reach their targeted vaccination rates, allowing them to end their lockdown. The lockdown in Victoria is also poised to end this week, with the state expected to reach 70% double-dosed this week and the lockdown will end on Friday. An end to lockdown in Australia’s two most populous cities should see our economy get back on track in the December quarter, after a disappointing September quarter.

Though they treaded water overnight, the prices of Industry metals and energy related commodities, such as coal or oil, continue to remain very high. Iron Ore is the one thing that remains relatively weak and Chinese data yesterday showed that their steel production in September was at its lowest level since 2018. While this isn’t ideal, it does show potential upside for iron ore if steel production starts to rise again. Keep an eye on the materials stocks for some good buying opportunities down here.

Australian Outlook

The XJO is expected to edge higher on open this morning, following another strong night in the U.S. Yesterday, our market struggled to make gains. It was likely spooked by fluctuating U.S futures during our session, which indicated that the U.S might have a breather after such a strong couple of days of gains. With the U.S instead extending their rally once again overnight, but their futures still in the red this morning, we may see a repeat of yesterday.

Locally, our market faces its own pressures. 7,400 is a key level of resistance. We have stalled here both historically and recently. It is also roughly where the 100 and 50 day moving averages come in. We have also had three straight days of gains – a lot for a sideward and volatile market. Iron Ore continues to drift off, weighing on some of our key miners. Oil has found resistance as well. Offsetting this though are strong financials (XFJ), which are trading at resistance in a broad ascending triangle. For our market to play catch up with the U.S, we will need to see one of these major sectors join the rally.

US Markets

US shares mostly finished higher overnight, after staging a strong rebound from their lower opens. Tech led the rally and the NASDAQ was the strongest performer on the night. Data overnight showed lower than expected industrial production in the US for September, though a measure of strength in the housing market came in higher than expected. There was a lack of large reporting stocks overnight, but the US reporting season heats back up tonight, with J&J, Netflix, and many others reporting quarterly earnings. So far the earnings reporting season has been extremely positive and it looks set to continue to drive US shares higher. Seven of the eleven sector groups of the S&P 500 closed higher overnight, with Discretionary the strongest performer, followed by Technology and Communications stocks. Utilities and Healthcare were the weakest performers overnight.