The XJO is expected to edge higher on open this morning following a mixed and uneventful night of trading in the U.S on Friday. Their futures are flat.
We crawled back most of our intraday losses on Friday, to finish marginally in the red. We bounced off key support at roughly 7,750 as well as a small uptrend line that has formed since the recent trough. Roughly 7,800 is the recent resistance we have been flirting with which we should retest again this morning.
Even though the underlying uptrend line broke a week or two ago, we should assume the market is still trading in a broad uptrend. This means that we should expect our market to reach the all-time high at roughly 7,850 soon. However, we continue to trade in a meek fashion, where we see one or two days of volatility, followed immediately by indecisive and subdued movement. It feels we are being dragged higher by the U.S. Our financials have been doing much of the heavy lifting to keep our market elevated whist our miners have lamented with falling iron ore prices. The financials have looked overbought for a while now, with the materials looking oversold. We could see a rotation soon, and we are starting to see cracks in the financials as they whip around near the top of the range. Furthermore, the materials seem to have found a bottom at key levels. This could ultimately translate to sideward movement for our market.
We are not a market of growth stocks and aren’t well represented in tech compared to the U.S. With our two largest sectors working against each other, there is a strong argument that though we may see all-time highs at 7,850, we may not push through this time around. Instead, it is reasonable to expect our market to continue to trade in a broad range, with roughly 7,600 as a support.
Our unemployment data came in stronger than expected last week, which is not ideal for those wanting rate cuts. Our market seemed to shrug it off, as the U.S has done with their own stronger than expected data since the start of the year.
It may be that markets are optimistic that there will be no further rate rises, but are happy to extend cuts out if it means the economy remains stable. There is a disconnect between the how the average person feels about their financial situation, and the broader macroeconomic data. The market at this stage is only concerned with the later, even though the two will eventually come together in a reckoning. It seems that the idea of a soft landing is helping to keep things elevated, but ultimately it means the market remains hard to read in the medium term.
US Markets
US shares closed mixed on Friday night, with the SP500 and DOW JONES closing lower, while the NASDAQ closed slightly higher. There was a lack of major news and events, so instead prices stalled after the recent strong upwards movement. This week will be a shortened week for US trading and there are fewer major events and data points than last week. The major event last week was the US Federal Reserve meeting, with the ‘FED’ maintaining a fairly dovish position despite January and February’s strong inflation data. The momentum remains to the upside for US shares, with shares currently melting higher. However, prices do look extremely expensive in the short-term by just about every available metric.
Only three of the eleven sector groups of the SP500 closed higher on Friday, with Communications the strongest performer. Real Estate, Financials, and Discretionary stocks were the weakest performers.
Technically, the SP500 broke out of an ascending triangle on Wednesday night, breaking above the previous all-time high resistance. Technically, the SP500 looks like continuing higher from here, though given these levels have never been seen before, its hard to say where the rally may stall, to the downside, the previous resistance at 5,175, which is also roughly where the uptrend line sits, is likely to act as support.
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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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