The XJO is expected to open flat this morning following a small pullback in the U.S overnight. U.S and major Asian futures are also in the red, so by market open we could also follow suit.

We finished firmly in the green yesterday in the face of a flat U.S close on Friday and even their negative futures during our session. It is almost like we wanted to reach our all-time highs, or be within proximity to it, regardless of whether the move made sense or not.

Again, this morning we are showing surprising resilience despite the red from whom we would typically follow, but this my change come market open.

We are trading near key resistance at 8,100. This level roughly represents our all-time highs. If we pull back from here, likely led by the U.S doing the same, it could indicate the beginning of a broader double or triple top reversal pattern.

Fundamentally, markets look expensive, especially in key areas. For the XJO, the major banks remain elevated at arguably irrational levels. They have been the main driver of our index whilst our other major sector, the miners, lamented. If our market wanted to rally over the past six or so months, it had to keep pumping the banks.

We are witnessing iron ore show signs of a turn around. These miners have been looking attractive for a while, but haven’t seen any buying due to continued falls in iron ore. However, if that changes, we could easily see a rotation out of the major banks and into the miners.

US Markets

US shares closed mostly lower overnight, with the NASDAQ and SP500 finishing in the red, while the DOW JONES managed to squeeze out a small gain. Overnight US economic data was mixed, with durable goods orders rising by more than expected, though there was a bigger than expected drop in core durable goods. Prices are very elevated for US shares up here, but that doesn’t mean they couldn’t go a little higher. Indeed, there are some major events later this week that could drive things even further higher in the short-term. These include NVIDIA’s report on Wednesday night, and Thursday’s nights US GDP, and Friday night’s US PCE data. While there might be a little more upside in US shares, most valuation methods show prices about as expensive as they have ever been, so it may be harder for markets to go significantly further than current levels.

Energy stocks were the best performers overnight, with oil prices rising strongly after Ukrainian attacks on Russian oil infrastructure. Staples and Utilities also fared well. Technology stocks were the worst performers overnight, followed by Discretionary stocks.

Technically, despite some strength over the past few sessions, the SP500 has been unable to exceed the high of Thursday last week. The index does remain on an upwards movement, but it will first need to exceed that level at roughly 5,635 before further gains will look likely. Should we see the market rise beyond this level, the next level, the all-time high resistance is not too far away at 5,670. Should we see a bearish candlestick from here, that could indicate a move lower.