The XJO is expected to open higher this morning near 8,350 at time of writing.
Yesterday we sold off, likely in anticipation of a selldown in the U.S which was heralded by their negative futures during our session. Alas, their market last night managed to retake opening session losses to finish marginally in the green. This reversal likely explains our strong open this morning as we had priced in an expected fall yesterday.
We were long overdue for a pullback. It was marginal, but it broke the past two week’s streak of slow but consistent gains. This morning’s expected open should reverse practically all of yesterday’s losses.
The U.S shook off the Moody’s downgrade, like it has practically shaken off every other piece of negative news. We are still in a cycle where bad (macro-economic data) equals good, as it means central banks are more likely to cut rates. And the promise of a rate cut is likely responsible for much of the rally both locally and overseas – especially now that the Fed doesn’t have to stress as much on inflation inducing tariffs (though it likely remains a concern).
Markets remain bullish. The trend is up. And we should assume it will continue for now, albeit cautiously. There are plenty of headwinds, and it is almost unbelievable that our market is only a few per cent away from our all-time highs. It does look like its running out of steam, with buyer fatigue setting in too. In essence, it is wise to trade what one sees, though it can be hard to justify buying in at these prices.
The RBA is set to drop interest rates by 25 basis points today. It will be interesting to see how our market reacts. The cut is already priced in, so any reaction will likely be on future guidance from Bullock. The RBA typically maintains a stoic “wait and see” attitude where it likes to promote caution and sensibility. The market, however, seems to think there are plenty more cuts to come regardless, and will want to see some hope of that in her messaging.
US Markets
US shares initially opened strongly lower overnight after US government debt was downgraded by by ratings agency moody’s. However, buyers quickly returned and pushed prices back up to flat. Currently it seems that the bullish momentum can’t be shaken. Part of this is related to the debt issue, because US government debt can be seen as money printing, and that money priting is flowing onto the sharemarket.
Seven of the eleven sector groups of the SP500 closed higher overnight with Healthcare the strongest performer, followed by Staples and Industrials. Energy was the worst performer.
Technically, the SP500 remains firmly in an uptrend. In the short-term they look primed to reach 6,000. Should that level break, the next upside target would be the roughly all-time high resistance around 6,150. Currently though, the gradient of the trend remains too steep to be sustainable, and immediate term indicators like the stochastic remain heavily overbought. They are only roughly three per cent away from their all-time highs, but it would hard to suggest they will get there soon. It perhaps seems more likely they will have some profit taking or consolidation before reaching it considering how tired they look.
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