The XJO is expected to tumble on open this morning following a strong pullback in the U.S overnight. Their market broke both the uptrend line and key support to move back under their previous all-time high resistance. Our market is expected to do the same on open.
U.S futures have moved a decent measure into the green, so we may find much of our damage is done in the morning session. If U.S futures remain positive, we may feel comfortable retaking some of the opening losses by the end of the day.
We should open just below 7,900 key support. At this stage we are set to break lower, but by the time the market opens we may just flirt with it. If we do break lower as expected, we will be trading back in the realms of the consolidation range we had traded in since roughly March. This will be familiar territory, however sentiment has been positive lately so we may not settle back into old routine so quickly. Beyond 7,900 key support, 7,850 should prove to be a key level. If selling persists, there is likely key levels every 50 points on the way down.
The U.S has GDP figures tonight. They are expected to come in about half a per cent higher than the previous reading at 1.9%. If it comes in stronger than expected, we should expect the U.S to have jitters. However, if it comes in as expected or slightly lower, their market should be stable (cet. par.).
US Markets
US shares fell strongly overnight, with technology stocks leading the selling, after disappointing earnings results from Tesla and Google. In general, US shares are priced to absolute perfection, so earnings will need to be stellar to keep prices rallying at the pace of the last 12 months. US economic data overnight was quite positive, with stronger than expected Services PMIs and with more building permits issued than expected, though Manufacturing PMI was lower than expected. In general, things are pretty positive for the US market, with investors pretty much getting everything they could ask for. Regardless, prices are the most expensive they have ever been, so profit taking, pullbacks, and volatility shouldn’t be unexpected.
Four of the eleven sector groups of the SP500 closed higher overnight, with Utilities the strongest performer, while Healthcare stocks also saw notable gains. Most other sectors saw strong selling, with Technology, Discretionary, and Communications stocks the worst performers.
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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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