The XJO is expected to open higher this morning following renewed buying from the U.S overnight. Their futures have also edged into the green.

We should open just below key support at 7,800 and it seems likely we test it today. It would be hard to expect our market to break with both the U.S trading near their all-time high resistance, and a very important CPI reading from them tonight. The U.S is clearly primed to either break through and make fresh highs or rebound from resistance and profit take depending on how they digest the reading. Our market will follow suit either way.

We have held to the comfort of the 50 day MA. By that metric we are neither overbought nor oversold in the short-term, and ready for what the U.S delivers. It therefore seems likely we hold 7,800 and don’t get too far ahead of ourselves, though we can’t help buy into the U.S optimism before the reading.

There is not much else to think about. Keep an eye on key levels, which are practically every 50 points for our market. Even though we may be driven by a fundamental move and push through several levels, we typically will hold and rebound off one. For example, if the news is positive tonight, we are likely to break through 7,800, but hold 7,900. Or if it is poor, then break through 7,700 but potentially hold 7,650 or 7,600.

Broadly speaking our market is trading in a channel. The CPI reading may push us out of it, but at this stage it seems likely we continue to drift. Economic data like CPI, and how the U.S trades, will give our market a bullish or bearish tilt. We must assume this is the case until we see evidence of otherwise.

US Markets

US shares closed higher overnight, with the NASDAQ reaching a fresh record, while the SP500 and DOW JONES returned to just below their all-time highs. This strength was despite some stronger than expected producer price data, which points to continued inflation troubles. The real test for markets will come tonight however with the CPI data for April. This will probably be the biggest event this month, it is expected to show a resumption of the fall in inflation and this could be a positive thing for the market, should it come in in-line or better than expected.

Eight of the eleven sector groups of the SP500 closed higher overnight, with Technology and Real Estate the strongest performers, while Staples stocks saw the most selling.

Technically, the SP500 is trading just below the all-time high resistance at roughly 5,260. Should the index rise any further, we would quickly see a move to and perhaps even through the all-time high resistance, with a break above this level for subsequent gains to look likely. Should the index fall from here, we could be seeing a double-top, which would potential signal further selling.

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