The XJO is expected to edge lower on open this morning despite a small rally in the U.S overnight. Our meek opening may be chalked up to our rally yesterday predicting last night’s gains (and thus preemptively pricing it in) and flat to negative U.S futures this morning. Furthermore, we are consolidating near the top of the range, and despite peeking above resistance yesterday, its not surprising to see a pullback to continue that consolidation.
Roughly 7,350 remains the key level. We should flirt with it once again this morning. It seems we broke higher yesterday albeit with a whisper and not a bang. If our market can hold the uptrend line and this level as a support, it’s a positive sign of continued bullish sentiment.
Short-term indicators still put our market in overbought territory. They can remain overbought for a while before any pullback happens, but it reflects a market that remains cautious after such a strong run recently.
US Market
US shares closed higher on average overnight, with each of the three major indices managing to record modest gains. There was a lack of major economic data, so shares instead drifted higher with the current bullish momentum. We also saw some company earnings reporting overnight, with Charles Schwab and M & T Bank Corp each rising after better than expected results, while State Street fell after its report. Tonight will see many major stocks report including Johnson and Johnson, Bank of America, Netflix, Lockheed Martin, and Goldman Sachs. Overall the season has been mostly positive and it is helping US markets to continue their grind higher.
Nine of the eleven sector groups of the SP500 closed higher overnight, with only Energy and Communications seeing notable selling. Real Estate stocks fared the best, followed by Financials, which continue to be supported by great earnings results.
The S&P500 remains on its medium-term uptrend line, and the index continues to looks cautiously bullish. With the index continuing to hold the trendline, it looks likely to continue higher to the next major resistance level of 4,200. Should the index fall from here, it will have to break the uptrend line, then the support at 4,075, before it will look like falling further.
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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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