The XJO is expected to open higher this morning following renewed buying in the U.S overnight which saw their market once again make fresh all-time highs.
We should translate their move to an open near 7,750 – a resistance level we will contend with during our session today. U.S futures are in the green, and if they remain so during our session our market may feel comfortable breaking 7,750 and setting its sights on the next key level at 7,800.
We shouldn’t expect too much though. The U.S is not trading in a way where they are seeing consecutive strong fresh highs. Instead, they have one strong day of bullish movement, followed by a week or so of tight consolidation. We should expect something similar following last night’s move. Our market will likely not feel too comfortable moving too far away from the middle of range and the 50 day MA which comes in around these levels – and so we shouldn’t expect today’s strong open to lead to much further gains. Of course, if the U.S changes its tune and continues to smash higher, we will try our best to follow suit however we will do it begrudgingly.
The Materials continue their descent, having now wiped off the entire rally since it began in October last year. Iron is showing signs of stabilising, and some of our key miners are at relatively cheap levels near key supports. There is likely opportunity here, but we will need to wait and see the sector stabilise first. With an overheated Financials sector, we could see a rotation from the banks into the miners soon.
We have an RBA interest rate decision today at 11:30am (AEST). It is expected that rates will remain on hold, but all eyes will be looking at the future guidance from Bullock who has been rather hawkish of late. Our economy remains at full employment and inflation seems sticky at these levels. She warned in the last meeting that if inflation doesn’t cool soon we will head back into a rate hiking cycle. With the latest reading of unemployment showing little change, she may reinforce this rhetoric – which is likely not good for our market. However, we will need to wait and see.
US Markets
US shares closed higher overnight, with each of the three major indices seeing reasonably strong gains. There was a lack of major news or events for US shares, and instead it seems like prices jumped with the current bullish momentum. This will be a mostly quiet week for US shares, with US retail sales on Thursday night probably be the biggest release of the week. Given that there will otherwise be little major news, and that US CPI was recently lower than expected, it is very possible that we see further gradual bullish moment for the next few sessions for the US.
Eight of the eleven sector groups of the SP500 closed higher overnight, with Discretionary the strongest performer, followed by Technology and Industrials stocks. Utilities stocks saw the most selling followed by Real Estate.
Technically, the SP500 recently gapped through the previous all-time high at 5,450 which indicates further upwards movement, though its hard to say where the upwards movement will stall. Should we see selling, the previous resistance at 5,375 is now likely to act as support; should it break, we are likely to see further selling.
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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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