The XJO is expected to open lower this morning. Without a strong U.S, which is instead tracking sideward, our market doesn’t have the confidence to hold the top of the range.
We should rebound off 7,850 key resistance, with our expected open near 7,800 key support. There is also a short-term uptrend line that comes in at similar levels which we will contend with today. U.S futures are slightly in the red. With little to no leads our market seems likely to have most of its falls in the morning session unless something changes overseas.
If the short-term uptrend line and key support at 7,800 breaks, we should expect our market to revert back to both the 50 day MA and the key support near 7,750 to 7,700. This would also be a clearer indication that we are heading back towards the bottom of the range near 7,550 – though we would likely need to see the U.S sell off or profit take to get there. Our short-term stochastic also put us in overbought territory, but we can remain here for time to come until something changes.
In essence, technically, our market should continue to trade in the broad channel pattern, with a mean reversion towards the middle of the range seeming to be the next move.
Markets remain driven by macroeconomic data, as it informs the narrative of the future guidance of monetary policy. U.S markets believe rate cuts are coming this year. On the other hand, our RBA has signalled that rates may actually hike if inflation doesn’t come under control. What makes matters worse is that our GDP numbers were softer than expected last week, indicating that our economy is heading towards stagflation – arguably one of the worse situations to be in. It does seem more likely that we head towards a good ol’ fashioned recession (or get very close to one) and inflation eventually comes off, however we shouldn’t expect rate cuts to come as quickly as perhaps what markets are hoping for.
With sentiment being driven by monetary policy, which in turn is being driven by key macroeconomic data releases, it makes markets harder to play, as there is potentially a change in the tides always around the corner. For example, last week, the U.S smashed higher on positive news, but did very little with the employment data on Friday night. Our market tends to follow the U.S. Our own economic situation is building to the point where it feels like we want to sell down, but are simply being held up by their strength.
In the week ahead, arguably the most important news is U.S CPI on Wednesday night, where it is expected to largely stay the same (if not cool slightly), as well as an interest rate decision from the Fed. It is expected to remain on hold at 5.5%, but markets will of course be looking for future guidance from Powell. He has been largely dovish since the start of the year, and we should expect him to continue playing the same tune. On Thursday at 11:30am (AEST) we have local unemployment numbers, which are actually expected to fall slightly from last month. This is not what the market will want to see, and will likely continue to drive negative undertones. This seems likely to continue the current situation where our market exacerbates falls in the face of a U.S pull back, or has subdued gains when the U.S pushes higher – perhaps ultimately keeping us in this broad channel for a while yet. On Thursday night, the U.S has PPI data which is expected to soften.
US Markets
US shares closed slightly lower on Friday, before closing slightly higher overnight. There has not been a whole lot of movement for US markets for the past three sessions, and prices have instead drifted sideways at roughly the all-time high levels. On Friday, the US jobs report did show a slight tick higher in US unemployment, but with more jobs created than expected and with wages rising faster than expected. The data doesn’t point to the economic slowdown that the Fed would want to see before cutting interest rates. The Fed will meet later this week for their June meeting and markets will be looking for any clues as to the future timing of rate cuts; currently the consensus expectations is the first cut will come at the September meeting. On Wednesday this week we also have US CPI (inflation) data, which will be closely watched and which will also influence the timing of future rate cuts.
Eight of the eleven sector groups of the SP500 closed higher overnight, with Utilities and Energy the strongest performers, while Financials saw the most selling.
Technically, the SP500 recently broke above the previous all-time high though has struggled to continue much higher. Its hard to say where this movement may stall as these are level that have never been seen before. However, the index seems to be stalling around 5,370 given the past three sessions of movement. Should the index fall from here, it would have to break below 5,320 before it would look like falling further.
Want to learn how to trade?
The team at TradersCircle/Emerald Financial have released a free online stock market education course, click here to enrol and get started.
- XJO to open flat with US markets back around resistance - September 2, 2024
- US markets close lower ahead of NVIDIA report, which disappoints - August 29, 2024
- Investors take pause ahead of key NVIDIA report - August 28, 2024
Leave a Comment
You must be logged in to post a comment.