The XJO is expected to open higher this morning following a continued move higher in the U.S overnight. U.S futures are also mildly in the green.
The U.S moved within arms reach of their all-time highs, after bouncing from their uptrend line. This likely gives our market confidence that their spat of sideward movement following Trump’s mixed messaging on China is likely over, and the rally will now resume.
Yesterday we reversed morning losses to finish firmly in the green. We also shed much of Friday’s losses and finished the session flirting with 9,050 key high resistance once again.
Our expected open is around 9,070, not too far off of 9,100 – roughly our all-time high resistance. It seems likely that we could flirt with it rather than push through today considering the strong lead we made yesterday and how much we have outpaced the U.S.
Looking forwards, we should assume that 9,100 will break considering the strength we are seeing both locally and overseas. The bulls are back in control for now. Keep in mind however, that when our market makes fresh all-time highs, it often pulls back immediately or within a handful of days of consolidation. This happened last time: Thursday was the break into fresh all-time highs, and then immediately on Friday we sold down. This means that a break into fresh all-time highs has a counterintuitive entry signal – if you want to enter a bullish position, you are almost better doing so on the reversal the next day.
US Markets
US shares jumped strongly overnight, with the SP500 index enjoying its best two-day performance since June. Investors have been pleased with Trump backing down from his new tariff threats against China, as well as with a strong start to the company earnings reporting season. Around 85 percent of the companies that have reported have beaten their earnings expectations, which is slightly above average. Analysts currently expect third-quarter S&P 500 earnings growth, on aggregate, of 9.3% year-on-year. Additionally, White House economic advisor Kevin Hassett stated that the federal government shutdown is likely to end this week. So far US economic data has not been reported during the shutdown, but on Friday the Labor Department will make an exception by releasing its September CPI (inflation) numbers. This will provide the FED with a glimpse at the state of inflation and an insight into whether Trump’s tariffs are affecting consumer prices.
Nine of the eleven sector groups of the SP500 closed higher overnight, with Communciations, Materials, Industrials, and Financials the best performers, though most sectors closed notably higher. Utilities and Staples stocks were the only ones to close lower on average.
Technically, the SP500 bounced back up towards the all-time high resistance overnight, which sits at roughly 6,750. That level would have to break for further gains to look likely, though with the momentum overnight, a break higher is certainly possible. To the downside, the recently lows around 6,550 are now likely to act as support. Overall the index remains in an uptrend, with higher peaks and troughs – the index just set a new higher trough so we will need to look to see if a new higher peak (above 6,750) eventuates from here.
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