The XJO is expected to open flat following a small pullback in the U.S on Friday and their flat futures this morning.
The XJO’s strong rally on Friday gives us some confidence that our market can play some catch up with the U.S which has significantly outpaced us over roughly the past month. Our move on Friday likely broke the downtrend line that has been active in our market since roughly mid-April. It is possible however that the downtrend line is simply shallowing out, and after the recent strong run (which goes against the recent tired sentiment), it wouldn’t be surprising to see some profit taking and/or consolidation soon.
The XJO has confirmed the uptrend line, and if indeed the downtrend has concluded, then we will have seen a break of the broader pennant in the direction of the underlying trend. This would typically imply further gains, but our market’s recent sentiment has been tired and indecisive, and we would need to see continued positivity from overseas.
Finally, we roughly settled on the both the 50 and 100 day moving averages by close on Friday. From this indicator alone, the market is considered neither overbought nor oversold in the short and medium term as the average price the market has been bought or sold for the past 50 and 100 days is roughly 7,250. So even though we are being dragged higher by the U.S, we are still trading within a sort of comfort zone.
Roughly 7,275 remains the next resistance. Roughly 7,350 to 7,400 is the next level beyond that which marks the level in which the downtrend started. If we do see a pullback from here, then 7,150 to 7,100 marks the recent lows of the past month or so. The 200 day MA and the underlying uptrend lines comes in at roughly 7,125.
In the week ahead, probably the most important events are our local PMI data Friday morning, and Powell testifying both Wednesday and Thursday night. Aside from that, tomorrow our RBA meeting minutes will be released, which could give further insight to the future of local interest rates. Furthermore, there is U.S building permits Tuesday night, UK CPI Wednesday evening, UK interest decision Thursday night, and PMI data from the U.S on Friday night.
US Markets
US shares closed moderately lower on Friday, ending a run of six consecutive gains. There was a lack of major US economic data, so stocks drifted lower with some profit taking after several days of strong gains. Economic data in the Eurozone suggested that while CPI remains elevated, it is starting to come back under control. US markets are definitely looking toppy when considering the ratio of prices to future expected earnings, but it will likely take some sort of event or catalyst to cause the current upwards momentum to stall. US markets will be closed on Monday for the Juneteenth public holiday and there is not a whole lot of major economic data this week either, so don’t be surprised to see US markets hold their levels as we head into this week.
Most sectors closed flat on Friday, with only Technology and Communications stocks seeing notable selling after an extended period of strong gains. Utilities closed moderately higher.
Technically, the SP500 remains on a strong uptrend at the moment, with prices powering higher. The index may have found some resistance around 4,450 on Friday however, so this level will have to break for further gains to look likely. Should some profit taking come in and lead to a pullback, the recently broken 4,300 resistance level may act as support on a downside move.
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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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