The XJO is expected to open lower this morning following a big selloff in the U.S overnight. Their futures are flat.
We should wipe off yesterday’s relief rally and continue the decent we started on Wednesday. 7,750 support will be tested on open this morning, and will likely fail. 7,700 is the next key level beyond and don’t be surprised if we reach it today. This is also roughly where the 50 day MA comes in, which has acted as key support for our market recently.
The sell down was inevitable and overdue. It’s not surprising it was on the back of dashed hopes for rate cuts this year. For a while now, the writing has been on the wall that the U.S has been overly optimistic for rate cuts in the face of strong economic data. The Fed member last night simply pointed to it.
Last night’s move was the largest their market has seen since arguably the bull run began back in October. However, strong pullbacks have been immediately met with buying, and the trend remains firmly bullish for their market. In essence, even though the pullback should herald further selling, we should wait for confirmation.
US Markets
US shares closed firmly lower overnight, with each of the three major indices closing strongly lower. The selling came after Fed member Neel Kashkari said that unless inflation continues to fall, there is a possibility of no rate cuts this year. Mr Kashkari also stated that the last few inflation data points have been concerning. Other US economic data was mostly negative overnight, with more jobless claims than expected, and with a larger than expected trade deficit. Additionally, the Atlanta Fed’s GDP now estimate for the first quarter came in lower than expected. Overall the market probably doesn’t mind slightly worse data, as it points to less inflation. The next major test for US markets will come tonight with the unemployment report, with the market likely wanting to see a slight drift higher in unemployment.
All eleven sectors of the SP500 closed lower overnight, with Technology, Healthcare, Communications, and Financials seeing the most selling. Most other sectors also saw notable selling.
Technically, the SP500 broke below the key support level and the longer-term uptrend line around 5,180 – 5,200. Given the break below this key level, the next downside target would likely be the 5,100 point level. Should we see a bounce from here, 5,200 is likely the first resistance to the upside.
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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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