The XJO is expected to open higher this morning following a strong rebound from the U.S overnight. Their futures have edged into the red however, and this indecisiveness is likely to keep our market suppressed today.
Yesterday we held the short-term uptrend line that has been in play since rallying from our lows. We also clearly rebounded from key resistance at roughly 7,350. This morning, we should retest that resistance and trade right into the point of the triangle. As we head into the weekend, we shouldn’t expect to break today without considerable help from U.S futures.
Local employment data came in yesterday stronger than expected. This is not good. Our market wants to see weakening economic data, so Lowe has less cause to raise interest rates. It’s a sad irony where good news is bad for our market, and people losing their livelihoods is good for it. Our market didn’t react too much yesterday, but it seems that the data in conjunction with a bearish night before in the U.S was enough to halt our recent run higher.
From here we will need to see which way we break out, though we often expect the underlying trend to win. With U.S inflation coming in lower than expected, and the U.S showing a promising move higher overnight, next week could be a strong week of gains as we head back towards 7,500.
US Markets
US shares closed strongly higher overnight in what appears to be a delayed reaction to the weaker than expected CPI reading in the prior session. The rally was also helped by lower than expected US producer prices, which is a further deflationary sign. US markets continue to form the narrative that inflation is coming under control and that interest rates will soon peak as a result. As long as this remains the view, and the potential economic downturn isn’t seen as too severe, US markets are likely to continue higher. US markets are also about to enter a company earnings reporting season, which will kick-off in earnest tonight.
Ten of the eleven sector groups of the SP500 closed higher overnight, with Technology, Discretionary, and Communications each rising around two percent or more. Real Estate stocks were the only ones to close (slightly) lower on average.
The S&P500 remains on its medium-term uptrend line, and the US market looks cautiously bullish. With the index bouncing from the trendline overnight, 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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