The XJO is expected to rally on open this morning following a strong move higher in the U.S last night on the back of lower than expected CPI. Their futures have also edged into the green.
Yesterday we tested 7,150 resistance but shed our intraday gains as we waited for last night’s results. We settled near the 200 day MA, as a point of comfort before heading into such a large event. With the U.S breaking resistance and setting new highs, our market will have the confidence to extend the past couple of days’ gains. We are expected to open near 7,200 which is roughly where the 50 and 100 day MAs come in. There is a potential downtrend line and a key level of resistance which come in at roughly 7,230, which looks likely we will test today. We shouldn’t expect much more than that from our session unless U.S futures move aggressively into the green.
Finishing of the week, it wouldn’t be surprising to see some profit taking come in that perhaps extends into next week. However, we may see some more gains as the U.S entrenches the idea of peak rates. If they can remain strong, our market is less likely to sell down aggressively and perhaps even hold. We would be fighting gravity however as longer and higher interest rates in contrast to the U.S are underpinning negative sentiment locally.
US Markets
US shares closed firmly higher overnight, with prices rising after US CPI growth came in lower than expected. Headline CPI growth came in at 3.0% (vs 3.1% expected), while core CPI came in at 4.8% (vs 5.0% expected). This data suggests that the US Federal Reserve is winning its battle against inflation, and that there may not be too many more rate rises this cycle. Overall, the Federal Reserve is still expected to lift rates 0.25% when they meet later this month, but this could now be the last rise this cycle. This would be a massive positive for US markets, and though they do look a bit overbought after three months of strong gains, this reading does provide some bullish fundamental support to prices. The next major event for US markets is the company earnings reporting season, which kicks off in earnest tonight. Earnings will need to be strong to justify current prices.
Nine of the eleven sector groups of the SP500 closed higher overnight, with Communications the strongest performers, followed by Utilities, and Materials stocks. Healthcare and Industrials stocks closed lower on average.
The SP500 broke above the key resistance at 4,450 overnight and technically looks further bullish. Historically, the next resistance level is at approximately 4,510 index points, though these are levels that haven’t been reach for a while, so its no guarantee this is where the index will find a sticking point. The recently broken 4,450 level would now be expected to act as support.
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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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