The XJO is expected to open lower this morning following another strong pullback in the U.S overnight. They fell back to the lows from their previous session, and our market’s open should be roughly the same. Their futures however have moved strongly into the red as they continue to digest Powell’s comments which continued to push a strong tightening narrative.
Yesterday we managed to claw back some our sessions losses to finish at roughly 7,200 thanks to mildly positive U.S futures during our session. This morning we should retest these lows, likely break them during our session, and head towards the next key support at 7,100. Whether we reach 7,100 will come down to how red U.S futures remain during our session today. At this stage, their futures should push our market lower than what our futures are indicating.
7,100 is also roughly where the 200 day MA comes in – another clear and comfortable target for our market in the short term. From here, we will need to see how the U.S trades and digests the Fed announcements from this morning. With the current sell down, markets have formed a base of which they could justify a relief rally from as bargain chasers come in. Otherwise, if fear persists then there isn’t much in the way for our market to reach our recent lows of roughly 7,000 to 6,900.
US Market
US shares closed lower overnight, with prices falling after a 25-basis point rate rise from the US Federal Reserve. In the accompanying statement, Fed Chair Jerome Powell admitted that the US will likely have a mild recession, and that we shouldn’t expect rate cuts anytime soon. Most economists are expecting that this will be the final hike of this tightening cycle, though we will need to see how the economic data unfolds before this idea becomes more solid. Also plaguing the minds of investors are the recent issues of the banking space, which have mostly been triggered by the rising interest rates. Sentiment has notably shifted to the negative in the short-term and this is weighing not just on share prices, but also on oil and other commodities.
Every major sector of the SP500 closed lower overnight, with Energy again the worst performer, followed by Financial and Materials stocks.
The SP500 did trade in the green at points overnight but it fell off and closed at the daily lows. The index should now continue lower to the recent support around 4,070. Should the index break 4,070 to the downside, we should see a move back to the key 4,000 level. Should the index push back up and break above 4,160 however, we will likely see the index continue higher to 4,200.
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Sam Green is the Portfolio Manager at Emerald Financial, whilst also being an Equities and Derivatives expert for his clients at TradersCircle.
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