The US Tech space continued to sell-off overnight with many of the big names breaking key support levels. The Nasdaq itself also broke the 13,500 support. The next support which also fulfils the double top on the Nasdaq is at 13,250, which is the level to watch this week. Although the Nasdaq looks bearish the SP500 is still holding key support levels. The main Nasdaq sectors- Communication Services, Discretionary and Tech were all down sharply which make up just over 50% of the SP500. Most other sectors (The other 50% of the SP500) were either flat or slightly higher.
This is just showing the expected lag in the high growth stocks whilst Value continues to shine. Many were predicting this to happen this year as we see world Economies start to reopen.
Commodities took a breather overnight after a massive run, Iron Ore port price hit fresh highs at $US230.56 a tonne follow the Dalian futures yesterday which hit the limit up at 10%. These types of movements in Iron Ore futures are more traders than actual steel mills buying at these levels, so these prices are likely to cool off soon.
The go away in May might only apply to the Nasdaq space, as we saw the last correction in the US contained mainly those sectors. But that does not mean the broader markets will not give some back if the selling continues in this space. May is often a weaker month, although that is not always the case. We will have to continue to monitor technical signals for signs of a pullback and be quick in adjusting positions if key levels of support break; until that happens, we must assume that the upward movement will continue.
Tonight is Budget night, but most of the budget is already leaked. We do not expect a big overall move on the market, but healthcare and infrastructure are the winners in this year’s budget so far. We will be doing a budget update podcast which will be available from Thursday morning with our view of the budget and the stock market.
The XJO is expected to fall roughly 40 points on open this morning, putting it near 7130. This follows a strong pull back in the U.S, with papers headlining “renewed inflation fears” as reason for the fall. This may be the case, but after such a strong rally, it is typical to see a retreat as profit taking comes in and reweighting occurs.
The pull back on open this morning will likely have our market test 7100 – the previous key resistance that formed the ascending triangle our market had been trading in since roughly mid-April. There is also an accelerated uptrend line, which combined with the key support should help keep our market buoyed against excessive selling. In addition, Iron Ore remains strong, and U.S futures remain flat – signalling at this stage that the falls last night are not the beginning of an extended sell down.
US shares closed lower overnight, with weakness in tech stocks dragging the broader indices lower. The selling in technology and other high valuation stocks was blamed on inflation expectations, which makes higher valuations harder to justify. There was little in the way of economic or earnings reporting, so markets had to run off their own steam.
The DOW JONES index has made more all-time highs so far in 2021 than it had in the entirety of 2019, with the S&P 500 also setting a large amount of highs, in this environment it gets progressively harder for markets to keep rising without some sort of profit taking. Tech stocks were the weakest performers overnight, while Consumer Discretionary and Communications stocks also fell strongly. Utilities and Consumer Staples were the strongest performers overnight.