Australian shares are expected to open higher this morning, following buying in US markets overnight. Overall, US economic data was seen as somewhat disinflationary overnight, which is what the stock market wants to see. The Australian market does remain in a downtrend however, which may cap any movement to the upside.

Expect to see strength in the Materials stocks today, after a strong showing from materials shares listed in the US.

Should our market rebound from here, there are plenty of potential resistance levels to the upside, including 7,100 index points, and 7,200 if that breaks. At the very least we look likely to come back up and test 7,100. Should we resume selling, the recent lows at 7,000 is the support level to watch.

US Markets

US shares closed moderately higher overnight, with each of the three major indices finishing in the green. This came after mostly deflationary economic data, with lower than expected German CPI, and lower than expected US GDP prices. Additionally, there were fewer than expected US home sales, all of this data can be seen as lowering the likelihood of inflation. US shares are still definitely in downtrends, with downwards momentum, but the more disinflationary data that comes out, the more likely we are to see US markets rebound.

Ten of the eleven sector groups of the SP500 closed higher overnight, with only Utilities closing lower. Communications and Materials stocks saw the most buying.

Technically, the SP500 is showing a ‘morning star’ bullish reversal signal after finding support around 4,250 index points. The index remains on an overall downtrend, but it could rebound back to the previous level of support at 4,330, which may act as resistance.

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