Fed Interest Rate Decision Looms

Recorded by Karo Cornips at 4:00pm on 26/7/2017

Welcome to today’s weekly market update for the 26th of July 2017. Keep in mind this advice is general only so it is not tailored to your particular circumstances you need to decide for yourself as to whether it is appropriate to you.

So this is the chart of the XJO, represents the top 200 stocks by market capitalisation for our market and its the chart that we often look at to get a direction of where our market is going. So if you have a look at the XJO it was heading in this nice down trend line, since its highs at 5950 but today we did break it to the upside.

The XJO was being forced into a triangle pattern as there is a very very strong level of support around these levels here and also you can see it was a support level back here as well. But as I said today we did break out of that descending triangle to the upside.

The next level of resistance that we can see is towards the 5800 level so if I get rid of this line what we are really seeing is the XJO in a sidewards channel. It's been trading in that channel for some time and we haven't really had the catalyst we need to break to either the upside or the downside. Now you would have to expect this channel to continue, but if we do see America and the rest of the world continue to be bullish and we start rising into our reporting season, don't be surprised if we see a break of this 5800 level, this 5850 level, and possible head all the way back up to the 5900 or 6000 level.

If we do disappoint, and world markets start to pull back for whatever reason, then obviously the first level that we need to look for is a break of this level here which is around 5675 and this level here just below 5650.

You can see that we have the 200 day moving average which is help propping up our market. If this continues to rise don't be surprised to see our market continue into highs and break these 5850 levels.

To help break this down we can look into different sectors. So even though the market has been range bound if we break down the different or major sectors might give us a clearer picture of the future direction. So this is the energy sector for the XJO and you can see that this is similar in that it has just been travelling sidewards.

If we jump across to the financial sector we can see a bit of a different story as it has been in a nice upward channel and just recently started accelerating, so the next target for that is around the 6700 level.

Finally the material sector you can see did get sold off but obviously with the strong rise in Iron ore and oil, the major commodities, we are starting to head towards that major resistance level at 10200 essentially.

So finally the last thing we need to do is have a quick look at the Dow. Now this isn't having a huge effect on our market at the moment because they are actually trading in some what all time highs whereas our market is still struggling to get towards the 5950 level. So even though the Dow is trading at an all time high our market is very much lagging behind and the gap between our market has continued to widen.

So what's been pushing the Dow into all time highs is no doubt the reporting season. So the US reporting season has been great so far with the majority of companies exceeding expectations. And also the drop in the US dollar has probably helped some of their main companies that export.

What is typical of the Dow is that once it rises into all time highs it tends to go sidewards. You can see it has pretty much happened every time, and this sideways movement can last for a short or long period of time but we to have a resistance level up here and a support level down here. So we will have to see which way it breaks, but if reporting season continues to remain strong don't be surprised to see it break into all time highs and continue l higher. I don't think we need to go into the Dow tall that much more as I said there is a major disconnect between both our markets. Our market has lots of room to catch up to them which would be more of a bullish indication for us that a bearish for theirs.

Getting back to our market, the things to keep an eye out for is that we have a reporting season coming up next week. Typically, on a cyclical level we to tend to rise into reporting season however it hasn’t happened this month. We may see a last minute run up into the reports and we also have the banks paying dividends so don't be surprised if the financials continue their rise as people buy up the banks for their good yields. I would be expecting more bullish if not sideways movement rather than bearish. I think overall 5650 is a level that is very likely to hold and we are either going to stay in this channel, or if we to see a break I am confident that break would be to the upside and I wouldn't be surprised if we saw us at 5950 over the next couple of weeks or so if reporting goes well.

Just to finish some keys things coming up;

  • We have crude oil inventories overnight tonight which I think could have a very big effect on the materials sector.
  • We have got the Fed interest rate decision tonight. A lot of people expect rates to stay on hold but I think more importantly we are going to be looking at how Yellen talks about the market and whether she is more hawkish or dovish about future interest rates. I think this will be a big one especially considering how much the Aussie dollar has increased in value due to the US dollar falling so I think that might have an effect on our market.
  • Finally we have reporting season so US reporting season is under way and going strong, and our reporting season starting next week on Wednesday.

That's pretty much it - If you have any questions feel free to call the Office at OzFinancial/TradersCircle (03 8080 5788) and happy to answer any questions but otherwise good luck and happy trading!

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