The XJO is expected to rally on open this morning following a strong rebound in the U.S on Friday which saw their market move back above their key support. Their futures are also in the green.
On Friday we managed to retake almost half of the intraday losses by close as we rebounded off key support at roughly 7,750. Our market, alongside the U.S, is trading in a fashion where we get one or two big days of movement with conviction and volatility, which are then immediately met with smaller and indecisive movements. The time between the big moves however seem to be shortening. The U.S on Friday also made their first lower trough with its first big bearish day last week since the rally began in October. Over the past week, the mood of markets seems to have shifted. Perhaps we are seeing the undercurrent of markets pull stronger as investors wake up to the reality of a well overbought market in an environment where interest rate cuts seem less likely with each strong data release. This is not to suggest that the dancing has stopped, despite perhaps the music doing so already, but we should remain cautious.
Regardless, the trend for both markets remain bullish, and we should assume that markets will continue to make fresh highs – albeit reluctantly and slowly. Each time we make a fresh all-time high, we pullback within a handful of days – if not immediately the next day. And so, it is fair to suggest that even though we assume a bullish tilt, the dominant pattern for our market is largely sidewards. 7,850 to 7,900 remains the key level of resistance, however we should expect these levels to break – again, albeit reluctantly and marginally. 7,750 is local key support, with 7,700 to 7,650 the bottom of the trading range. The 50 day MA also comes in at these levels and has recently acted as support for our market. Despite our strong expected open this morning, we may yet touch it again in the coming days.
At some point markets will correct, but ‘when’ is not wise to try and forecast. It will not happen for no reason, but there may not be a distinct trigger. For example, last week, the reason prescribed to the U.S fall was on the back of a Fed member pointing to the writing on the wall – that interest rates may not come as soon as originally thought or wanted. However, this news was not new, and this Fed member was not Powell – so why was last Thursday different? It is not important.
We need to keep an eye on key data releases as they can be the tipping point for markets to finally fall, or vindicate to rally. The big news this week is U.S CPI on Wednesday night. Their last reading was stronger than expected, which caused a small flutter but ultimately could not stop their market continuing to make fresh all-time highs. However, if this reading comes in stronger than expected too, then perhaps it will be the tipping point, especially with the cracks in the bull mentality formed from last week’s pullback.
Aside from the CPI, we also have local consumer and business confidence numbers tomorrow – although its safe to assume the average consumer and business are not optimistic. On Wednesday night, we will also see the minutes of the last Fed meeting, and on Thursday we have Chinese CPI and PPI. On Thursday night, the ECB will release their interest rate decision (they are expected to keep rates on hold). Also on Thursday night, we have U.S PPI data.
US Markets
US shares jumped on Friday, reversing most of their selling from the Thursday session. The gains came after and perhaps in spite of a stronger than expected US jobs report, which showed many more jobs created than expected, with an unexpected fall in the unemployment rate. In recent times this report would be expected to be seen as inflationary and pushing out rate cuts towards the second half of the year, something that could be considered negative for the share market. However, this report did not have this effect, and indeed many talking heads on the market stated that they believe a June cut is still likely. The next major test in this regard will be the March CPI report on Wednesday night. The market will be looking for inflation to continue to fall from February numbers. Should inflation come in stronger than expected, it might trigger selling in the market.
All eleven sectors of the SP500 closed higher on Friday, with Communications, Industrials, Technology, and Energy stocks the strongest performers. Most other sectors also saw notable strength.
Technically, the SP500 rose back to the key support 5,200, though it wasn’t able to hold convincingly above this level. Should we see a rise through this level, the 5,260 level is likely the next resistance to the upside. Should we see the index fall from here, the next downside target would likely be the 5,100 point level.
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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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