The XJO is expected to open higher this morning following a flat night in the U.S on Friday. Their futures have edged into the green.

The U.S managed to hold on Friday night, bouncing from the previous all-time high to retake intraday losses and finish fairly flat. Our market on Friday sold off two thirds of Thursday’s stella gains, following a meek fall from the U.S the night before. We overextended to the downside, and now that we have seen the U.S is willing to at least hold ground, we should retake roughly half of Friday’s exaggerated this morning.

We should test 7,850 resistance on open. The past couple of sessions have blown through it with little consideration, however it seems reasonable we flirt with it today considering the meek moves in the U.S. There is also an underlying uptrend line that we seem to be holding – the same can be said for the U.S.

In the short-term, we would likely need to see the U.S continue making fresh highs for our market to have the conviction to push through 7,900 and make our own. Broadly speaking however, it is very much in the nature of our market to largely track sideward in a broad range. Thanks to the softening economic data from the U.S lately though, that range has a bullish tilt for now. This could of course change if new data comes out stronger than expected.

The financials, our largest sector, remains overbought. If there is strength to be found, it seems the miners may have to do the heavy lifting. The materials, our second largest sector take heed from base commodities, with iron ore being our largest export. Iron ore is tracking sideward, and the index is sitting in the middle of a broad channel that it has traded in since roughly the start of last year. There is room to head back to the top of the channel, however it is hard to expect that will happen quickly without gains in Iron Ore.

Stepping back and looking at the money flow into the market, even though we could successfully argue than some key stocks like the banks are overvalued, money is cheap at the moment. Companies are not performing better and yet their share prices remain elevated to the point they are easily considered overvalued. However, their share prices are a simple representation of how cheap money is now – the value of one dollar a few years ago, is now worth two dollars – so to speak. Instead of assuming that the companies will correct soon, perhaps this is the new norm with how devalued dollars are now. Of course, the market itself will correct at some point, but where that seemed likely to be around the corner even a month ago, with the soft data from the U.S recently, it is hard to say one way or the other.

In the week ahead we have Fed members once again speaking. They could reinforce the current bullish sentiment or cause unease depending on each member. Largely though, the U.S has just been vindicated with a slightly softer CPI reading and terrible retail sales numbers, following a softer than expected employment data a couple of weeks ago. Even if some of the hawkish members preach caution, it doesn’t seem likely to shake markets.

Tomorrow, we have our local RBA minutes from their last meeting. This also doesn’t seem likely to affect us. On Wednesday night, the U.S has their Fed minutes from their last meeting, and on Thursday night they have manufacturing and services PMI. The biggest news here is likely to be the Fed minutes.

It is a light week of reporting. This could translate to markets keeping the status quo unless anything egregious comes out of the woodwork as we track higher.

US Markets

US shares were fairly flat on Friday, with the DOWJONES and SP500 closing slightly higher, while the NASDAQ closed slightly lower. US shares did initially trade a little lower on Friday, but they rebounded throughout the session to close roughly flat. US investor sentiment seems to be remaining positive after their lower than expected CPI reading, which suggests that interest rate cuts are firmly back on the menu. This week is a fairly quiet one for data, so we could watch shares continue to drift higher with the current bullish optimism. Prices are very extended at these levels however, so we may not see a rally with as much gusto as we saw at the start of the year.

Eight of eleven sector groups of the SP500 closed higher on Friday, with Energy and Materials the strongest performers. Technology stocks saw the most selling, followed by Staples stocks.

Technically, the SP500 broke into fresh all-time last Wednesday, eclipsing the previous resistance around 5,260 index points. With a break of this level, we should see further upwards movement, but its hard to say where this could stall given these levels have never been seen before. To the downside, the previous resistance around 5,260 is likely to act as support.

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