The XJO is expected to fall on open this morning. U.S futures yesterday heralded a positive market last night, however they shed all their intraday gains to finish marginally in the red. Our market will give up all of yesterday’s meagre gains in response, with an expected open near 7,670. U.S futures have also dipped into the red.

The U.S does look bearish with last night’s move, and coupled with their red futures, we may be prone to further selling today. There is a clear floor however at roughly 7,650 however which we may hold today.

The U.S has corrected from their highs, so there is a bullish to sideward argument from here. Our market only fell six per cent from our highs, but there is plenty of support around here to support the argument for stability. 7,650, 7,600, 7,550, and 7,500 all represent major levels of support, as well as the 200-day MA which comes in at roughly 7,600. For us to break these levels and continue onto to correct, it seems likely we will need to see another spook led from the U.S.

This would likely come from a key macroeconomic data release. There is not really anything of clear import this week, so we may find things continue to settle for now.

US Markets

US shares closed lower overnight, with each of the three major indices opening firmly in the green before pulling back to close lower and at the lows of the day. There was a lack of major US economic data overnight and instead prices traded with the recent volatility and uncertainty. Comments from the Bank of Japan (who partly triggered this round of volatility with a surprise rate rise), who became dovish once again did little to spur a rebound. In addition, a US government bond auction priced the bonds at higher than current yields – indicating that bond yields could head higher from here after extremely aggressive bets on rapid rate cuts. It seems for the moment that investors are shocked and not sure how to respond, with plenty of investors happy to sell at this point and wait for things to die down.

Four of the eleven sector groups of the SP500 closed higher overnight, with Utilities and Energy the best performers. Discretionary stocks saw the most selling, followed by Materials and Technology shares.

Technically, the SP500 again held below the potential key levels of 5,250 and 5,330 overnight, which suggest that these previous support levels might now be holding as resistance. The index is still in an overall longer-term uptrend, but we can no longer draw a comfortable uptrend line. Similarly the current drop has been too steep to draw in a downtrend line. Instead, we must look at key support and resistance levels. Short-term momentum is to the downside, and the key level there is the 200-day moving average and support level at roughly 5,000 index points, though there may be an intermediate level at 5,115. To the upside, if we see a break of 5,250, we could see a move back towards 5,330.

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