The XJO is expected to edge higher on open this morning following another close into fresh all-time highs in the U.S overnight. Their futures are flat.
Yesterday we opened firmly higher, rallying in the morning session. However, in the afternoon, we sold off to give up roughly half of the intraday’ gains.
We are being dragged higher by the U.S, and we are clearly reluctant pricing in their gains. We are likely expecting imminent profit taking as their acceleration is unsustainable – indeed, they are overbought by many short-term metrics.
Of course, they can continue their march higher before they see any mean reversion, but our market will likely continue to dig in its heels. At this stage, we are quite reluctant moving away from the 50 day MA. When their market does indeed selldown though, our market doesn’t seem like it will have much issue pricing in their losses. However, it seems largely dependent on whether our market starts to believe in further cuts, before the selling begins.
Rate cuts have been the main driver for markets over the past two years. Recent evidence suggests that if our market increasingly believes more are coming, then we could largely ignore a U.S mean reversion and move back towards our all-time high. This seems less likely though. There are plenty of other good reasons, ones that our market has largely ignored until the recent selldown, for us to not see 9,000 again this cycle.
Ultimately, we continue to track sideward, in a tight range. We just bounced off the bottom of the range at 8,750, and the most likely target remains the top, coming it at 8,880. Until we see further movement from the U.S, a flashpoint, and a break of this channel, it is difficult to suggest which way our market will trend. There are a lot of balls in the air and investors are struggling to juggle them all and make sense of what to do next. Until we see otherwise, it seems unwise to try predicting which way (or when) this market will break.
US Markets
US shares managed to edge out gains overnight, with prices opening lower before grinding higher throughout the session to finish in the green. US shares had a weak start with Trump’s new skilled immigration visa fee potentially increasing costs for most large US companies. Shares in Nvidia rose 4 percent. The company said it would invest as much as $US100 billion ($150 billion) in OpenAI to support the building of new data centres and the infrastructure needed to power artificial intelligence workloads. Apple shares also rose four percent. US Fed Chair Powell will speak tonight and the US market will no doubt move with that event; investors will be hoping for further signs of rate cuts. The major event this week won’t occur until Friday though, with a PCE inflation reading. For the moment, momentum is firmly to the upside for US shares.
Five of the eleven sector groups of the SP500 closed higher overnight, with Technology and Utilities the best performers. Communications and Staples saw the most selling.
Technically, the SP500 closed at a fresh all-time high overnight, its third in as many sessions, with another bullish candlestick into blue skies. The index bounced off the uptrend line in Wednesday’s session, and overall it remains in a short-term and longer-term uptrend, which was recently confirmed by the break above 6,600. The SP500 has recently been pushing higher after breaking above the previous all-time high resistance at 6,500. However, after recently strong gains, we will need to watch carefully for where the next peak forms. The index remains in an overall uptrend with higher peaks and troughs, so even if the market stalls out around here, we would expect a higher trough not too far away – perhaps at the previous resistance levels of 6,500. The stochastic is also at the top of the range, which suggests the move may be running out of steam.
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