US shares rebound modestly, XJO to follow

The XJO is expected to open higher this morning following a rebound from key support in the U.S overnight. Their futures however have dipped into the red, which is likely dampening the enthusiasm of this morning’s open. Keep in mind that U.S futures during our sessions this week have been telling fibs, with overnight trading not really following what has been heralded. Indeed yesterday, they pointed to further falls and a break of support.

Yesterday our market stuck its head below the key support at 6,900 in a dramatic show of willingness to continue lower had the U.S failed at support last night. Our meek gains this morning further exemplify the bearish lamentation that underpins our market at present, which is unlikely to change until the U.S commits to further gains. Our market remains sceptical.

6,900 is the key support and bottom of the broad channel we have been trading in for almost a year. We have tested this level a few times in the past, with a strong rebound and rally following the stall. There are several good reasons to believe we should see the same thing this time around: October is often a positive month for markets that are preceded by a negative September; our market is at the bottom of the channel and oversold in both the short, medium and long-term; the U.S is at key support and their 200 day MA; sentiment around monetary policy has not shifted enough since the beginning of the recent falls to justify continued selling, especially considering where markets are at. All this combined offers a good platform for markets to rally, but be mindful we could see a fake-out to the downside before strength truly returns. This may translate to our market reaching 6,800.

Of course, we should wait for signals and trade what we see.

US Markets

US shares pushed higher overnight as prices rebounded somewhat from the recent selling. It came as bond yields reversed earlier gains, with the US 30-yr yield hitting 5 percent before retreating strongly. Mostly it just seems like a bit of reversion, with prices rebounded from strong selling over the past few weeks. US economic data was a bit mixed overnight, but it didn’t point to the economic slowdown that may be needed for interest rates to top out. Factory orders and S&P Global PMIs were stronger than expected, though a measure of job creation came in lower than expected. Investors will likely want to see weakening economic data from here before committing to a strong rebound. The next potential event that could trigger this is likely Friday night’s US unemployment report, though it sounds bad, markets will likely want to see unemployment start to rise a little.

Nine of the eleven sector groups of the SP500 rallied overnight, with only Energy stocks falling strongly. Strength was pretty broad-based, with Discretionary, Communications, Materials, and Technology stocks all faring well.

Technically, the SP500 is trading around the support at 4,250, and the 200-day moving average and longer-term uptrend line, which sat just a few points below this level. Overall the index is definitely in a downwards move, but its hard to say where it will find support. However, there are plenty of potential levels between 4,200 – 4,250, so it may have to close below 4,200 before another leg lower is triggered.

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