Our market has found some optimism lying around over the extended weekend as we are expected to open near 7,600 despite a fairly flat U.S.

It seems we are still happy to play catch up, with 7,600 only a stone’s throw away from retesting our all-time high resistance level. U.S futures have edged into the red, so we may find by the time we open that our expected gains are revised lower, but the strength at this stage is reassuring regardless.

From here it is hard to say. Of course, if the U.S holds strength and/or pushes higher, our market will likely follow suit. However, if the U.S shows weakness and pulls back, well our market likely doesn’t have the strength to stand on its own two feet. Considering we have had a decent run recently, it would be a good enough excuse to profit take. Indeed, the short-term stochastic are in the overbought area.

Last week we saw a rebound from key support at roughly 7,350 and the uptrend line which came in at similar levels. If we see some profit taking, then 7,450 and the uptrend line are the next key levels of support to watch. For the U.S, it would be their own previous all-time high resistance level that they can now use as support.

Our market finished last week with strength returning to the miners, thanks to a clear rebound in iron ore prices. The financials have also held strength. Ultimately, with both of our two major sectors coming online, our market has had the ability to rally. However, the banks are looking overbought in the short-term. If we do see some profit-taking in the financials, it may be counter-balanced by a rotation of funds into the miners (provided Iron Ore can hold). This may ultimately lead to some consolidation, or subdued rallies or falls for the market as a whole. Of course, there is a chance we see opposite too, with the past three days of miner’s rallies being met with some selling, which could be either offset by the banks, or exacerbated by them.

Last week was fairly light in terms of news, however the U.S had stronger than expected GDP numbers, but slightly weaker than expected PCE data. Its hard to interpret the recent strength in key U.S economic data. Initially, it would signal that rate cuts are further away than what markets were hoping for, with a chance of cut in March seeming less likely. Coupled with creeping bond yields, this realisation should translate to a selldown – yet it hasn’t. It may be that the stronger than expected data is quelling concerns that high rates have done a deeper (albeit lagging) damage to the broader economy than what markets originally expected. In essence, it may be that stronger economic data is perhaps showing the Fed may have indeed pulled off the “soft landing” they have spruced since the contractionary cycle began.

Data remains ever important. In the week ahead we have local retails sales Tuesday, and U.S consumer confidence Tuesday night. On Wednesday, we have local CPI data and Chinese manufacturing PMI. On Wednesday night we have a U.S interest rate decision. To finish the week, we have U.S manufacturing PMI Thursday night, and local PPI on Friday. Finally, on Friday night we have U.S unemployment figures.

It’s a big week of data. The local CPI, the Fed meeting, and U.S unemployment are the key readings to keep an eye on. We want to see lower CPI. We want to see a dovish Fed. And we want to see weak employment data.

US Markets

US shares closed higher on Thursday and slightly lower on Friday. US shares continue to grind around their all-time high levels, with small movements rather than large leaps at the current level. US GDP growth on Friday came in stronger than expected, which might have been expected to push markets lower due to inflationary concerns. However, the GDP price index came in slightly lower than expected, which may have helped prices hold at their highs. The next major test for US markets will come over the next two days, with the Federal Reserve meeting for January. Though the Fed is unlikely to make any changes to interest rates at this meeting, investors will look for clues about the likelihood of rate cuts moving forwards. Given that recent data has been stronger than expected, there is a fair chance that investors are disappointed as the Fed could suggest that rates will remain high for some time yet.

On Friday, the strength came from the Energy sector, followed by the Healthcare and Discretionary sectors. Technology stocks saw the most selling.

The SP500 seems to have established a new resistance level at the all-time high around 4,900, which it has been unable to break above for the past three sessions, should the index hold below this level, we could expect a move back to the recent resistance at 4,800, which may now act as support. Should the index break above this level, its hard to say where the move might stall.

Want to learn how to trade?

The team at TradersCircle/Emerald Financial have released a free online stock market education course, click here to enrol and get started.