The XJO is expected to edge lower on open this morning despite a small move higher in the U.S overnight. Their futures are flat.
Yesterday was a stronger day than expected. We continued to rally though most of the opening sessions, extending opening gains. We pulled back from our highs marginally, after we tried to breach 8,950. We finished just below it.
It was surprising to see the U.S rally into fresh highs on the same day their government shutdown. It was also surprising to see them hold those gains overnight. It seems that their market does not care, and once again only has eyes on those delicious interest rate cuts.
Our market seems to have shed some of the gloomy attitude it has had over the past few weeks of consolidation. With the U.S making fresh highs and holding ground, we felt comfortable breaking the consolidation range, with sights on our own all-time highs.
Our lacklustre open this morning makes sense considering how strong (and somewhat unexpected) our break-out was yesterday. We should open near 8,930, and despite the turning of the tides, it wouldn’t be too surprising to see a bit more profit taking come in today. The top of the channel was 8,880, which is now the next logical support, however 8,900 is an intermittent support that seems a more likely launch pad if sentiment has indeed turned bullish.
We still need to wait and see how things carry through, and whether our market will indeed return to a delirious state of momentum rallying. The reasons we sold off are still present, but we had ignored them for months before finally selling down. It wouldn’t be too surprising to see us stick our head in the sand, though we can’t suggest committing at this stage.
The U.S has employment data tonight. Judging by their strength, perhaps they are expecting it to come in at acceptable ranges to keep the rate cut high going. However, it is uncertain if the data will still be reported, given the shutdown.
US Markets
US shares managed to close higher again overnight, despite the ongoing government shut down. US shares initially opened higher but pulled back to close fairly flat. With the US government funding limit reached and no new agreement ready, parts of the US government will start to become unfunded. This includes their economic data agencies, and so tonight’s scheduled jobs report might not be announced. This uncertainty has so far not been enough to disrupt the current upwards momentum, which is pushing US markets into fresh all-time highs. Still, the longer the shutdown takes, the more likely that there will be economic damage and market selling. Should the US unemployment data not be reported, that could also trigger some worries in the market. The members of the Fed favouring rate cuts have been pointing to the weakness in the jobs market as the reason that further cuts need to happen, so Friday’s jobs report could either promote or demote another Fed cut. The jobs data may need to balance on a tightrope for investors, revealing a weakening labor market that supports further rate cuts without adding to fears about a recession.
Four of the eleven sector groups of the SP500 closed higher overnight, with Materials the strongest performers, followed by Technology stocks. Energy and Discretionary stocks saw the most selling.
Technically, the SP500 continued higher again after the breakout in the prior session. This time though, the index did not show a bullish candlestick, as the index opened strongly and closed lower and near the lows of the session. The index has recently bounced off a potential uptrend line and has pushed through the resistance of 6,700. This suggests further upwards movement and with the index recording higher peaks and troughs (on an uptrend), it was expected that the next peak would be beyond this level. The index would have to break back below 6,700 for selling to look likely. The index remains on a short-term and longer-term uptrend and the stochastic is also pointing higher, confirming the bullish momentum.
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