The XJO is expected to open flat despite a continued rally in the U.S which saw their market break into fresh all-time highs once again. Their futures are flat.
Last Thursday our market had a strong rally after the U.S initially made new highs, but we stalled at both a key level of resistance, and the downtrend line which come in at roughly 7,830 to 7,850. On Friday we stalled, with little to no intraday movement following a closed U.S session. It seems this morning we still are unwilling to break the downtrend line and key resistance. Even if by market open our futures start pushing higher, we shouldn’t expect our market to break these levels convincingly.
Our tentativeness despite the strength in the U.S is likely due to a few key reasons as opposed to any one cause. Firstly, our market may simply be cynical of any further gains from the U.S in the immediate term considering they have just experience four bullish sessions in a row, with three of them making fresh all-time highs. Our market is likely expecting a short-term pullback. Secondly, for our market to chase U.S gains, we would likely need to see either strong bullish movement from the key miners and/or strength from the banks. However the banks are very expensive, and quite likely overvalued at these levels. Our key miners could do much of the heavy lifting, however they are not in a strong position at the moment (though things seem to be improving). Finally, and most importantly, our economy is in a very different position to the U.S. Their move higher on Friday was likely spurred by rising unemployment. It rose by marginal amounts, which their market relishes as it points to a slowly cooling economy, and therefore a greater chance of both rate cuts this year, and the fantasised “soft landing”. However, our economy is cooling in the wrong places. Our GDP is dangerously low, but our inflation remains sticky and steady. In fact, the last weighted reading we received was slightly higher than expected. Unfortunately, this increases the likelihood of our economy heading back into a rate tightening cycle, which the RBA has threatened in its last two statements.
Overall, we continue to trade in a broad pennant and channel pattern, and we should expect that to continue until we see evidence of otherwise. Time decay strategies like bear calls, bull puts, and condors remain the favorable strategies for the market.
US Markets
US shares closed higher again on Friday, with each of the three major indices seeing modest buying. It was a fresh all-time high for the SP500, the third across the past three sessions. US markets saw little reaction to the Jobs report on Friday, with unemployment slightly higher than expected at 4.1%. The reading mostly supported the expectations that the Fed will start cutting interest rates in September, which has been helping to push US markets into fresh highs. Still, the Fed will likely want to see inflation (CPI and PCE) fall further before making that decision. Indeed, Fed member Williams stated on Friday that the battle against inflation is not done.
Eight of the eleven sector groups of the SP500 closed higher on Friday, with Communications, Staples, and Discretionary the strongest performers. Energy stocks saw the most selling.
Technically, the SP500 is on an overall longer-term uptrend and it closed above the previous resistance at 5,500 last week. This suggests the buying should continue and its hard to say where it will stall. Should we see selling, the previous resistance at 5,375 is now likely to act as support; should it break, we are likely to see further selling.
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Advisor at TradersCircle and Emerald Financial
Joining the team at TradersCircle in 2011, Karo has extensive experience in both investing education and derivatives trading.
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