US shares mostly pull back, XJO to open lower

The XJO is expected to fall on open this morning following a strong pullback in the U.S overnight. Their futures have moved into the green.

Yesterday we rallied from the small breather we had the prior session and managed to hold most of the gains into the close. Our highs were roughly 8,100, and with our expected pullback this morning, that level could be the new resistance for our market. We should open near the lows of yesterday at 8,000, but with positive U.S futures and a strong market of late, our market should stall here for much of the morning session.

We have an unemployment reading today at 11:30am (AEST), which could be a sobering reminder of our own economic and monetary policy situation. Unemployment is expected to rise from 4% to 4.1% (which is still practically full employment). Our market’s bullishness will be vindicated if unemployment increases by more than what is expected. However, it will likely have an adverse reaction if unemployment does not increase as expected. Regardless, it is a risk on attitude, and a very different environment from a week or so ago where our market was looking for any excuse to fall.

US Markets

US shares were mixed overnight, with relatively strong selling in the SP500 and NASDAQ, while the DOW JONES closed slightly higher. US economic data overnight was mostly fairly strong, with better-than-expected industrial production and a drawdown in US oil inventories. On the earnings front, a strong earnings report from Johnson & Johnson sent the DOW JONES higher, while weak earnings sent ASML and other semiconductor stocks tumbling lower. US shares still have pretty much everything they could ask for, with inflation coming back under control and with rate cuts on the horizon. Still, prices are very high up here, which could lead to plenty of volatility in individual stocks.

Six of the eleven sector groups of the SP500 closed higher overnight, with Staples the strongest performers, followed by Energy stocks. Technology, Communications, and Discretionary stocks saw the most selling.

Technically, the SP500 remains in an overall uptrend despite the overnight pullback, and this generally indicates further upwards movement. Its hard to say where the the gains may stall as these are levels unseen before, but perhaps round numbers, such as 5,700, could be the sticking point. Should the index fall from here, there is an uptrend line around 5,770, and then if that breaks, the previous resistance at 5,500 is likely to act as support.

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