The XJO is expected to edge lower on open this morning. Last night the U.S rebounded, much like we did yesterday, but gave up roughly half their intraday gains by close. Their futures have edged into the red, likely contributing to our muted open this morning.

Markets have paused for now. Our market found support at roughly 7,650. 7,600 is the next key level if we move lower today, which is also roughly where the 200 MA comes in. If our market returns to the 200 day MA, it could be considered neither overbought nor oversold from that longer-term metric. It could act as a safe point for our market as we continue to digest U.S moves.

The underlying uptrend line has clearly broken now, but the double top from our recent peaks has also played out. It is hard to say where the market will go from here in the short-term, but we should be mindful that a correction is possible.

US Markets

US shares closed higher overnight, with each of the three major indices seeing gains. However, prices weren’t able to hold at the intra-day highs and gave up almost half of the rebound by the close. US futures have also now ticked moderately into the red. Investors look uncertain here, shares are still extremely expensive, but there are increasing risks of an economic downturn on the horizon. We are also seeing earnings expectations be rapidly reduced, where just a fortnight ago, earnings were expected to keep growing strongly. Overall the selling we are seeing now was always going to happen at some point and it was exacerbated by how bullish stocks have been this year until now. Its hard to say where this selling will stall but at times like this markets often look to technical levels, such as the 200-day moving average for the SP500, which is around 5,000 index points – also a round number and key support level.

All eleven sector groups of the SP500 closed higher overnight, with Real Estate and Financials the strongest performers. Every sector saw notable buying, but every sector also pulled back from the highs of the day.

Technically, the SP500 was unable to close above the 5,250 level overnight, which suggest that this previous support level might now be holding as resistance. The index is still in an overall longer-term uptrend, but we can no longer draw a comfortable uptrend line. Similarly the current drop has been too steep to draw in a downtrend line. Instead, we must look at key support and resistance levels. Short-term momentum is to the downside, and the key level there is the 200-day moving average and support level at roughly 5,000 index points, though there may be an intermediate level at 5,115. To the upside, if we see a break of 5,250, we could see a move back towards 5,330.

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