The XJO is expected to edge lower on open this morning following despite a small rise in the U.S overnight. Their futures are flat.

We had an unexpectedly strong rally yesterday, where we almost reached key resistance at roughly 7,850. With the U.S continuing to track sideward overnight, our pullback this morning is likely our market cooling down after such a strong and out of the blue rally yesterday. Furthermore, it seems our market is trading in a broad pennant pattern, and yesterday we finished virtually on the downtrend line.

The countertrend line comes in at roughly 7,750, which is also where a support level comes in. The 50 day MA comes in at similar levels. The stochastic are heading towards the overbought area of the market, and with today’s pullback should correct somewhat.

Overall, despite the strong rally yesterday, we shouldn’t expect too much from the market which continues to be range bound and trading in a pennant.

US Markets

US shares were mixed overnight, with a rebound in technology stocks dragging the SP500 and NASDAQ higher, while the DOW JONES finished lower. There was a lack of major US news overnight, though a report did show stronger than expected US consumer confidence and there was also an unexpected build-up in US oil inventories. US markets remain in a bullish move, but fresh highs are becoming increasingly incremental. US investors are expecting rate cuts to start in September, and that is acting like a bullish carrot being dangled in front of the market. Expect further upside from here, but do not expect huge jumps.

Three of the eleven sector groups of the SP500 closed higher overnight, with Communications and Technology the strongest performers, while Energy closed flat. Every other sector closed lower, with Real Estate the weakest performer, followed by Materials, and Utilities stocks.

Technically, the SP500 is on an overall longer-term uptrend but it may have found some resistance at 5,500. Should the market close above 5,500, the buying should continue and its hard to say where it 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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