The XJO is expected to open slightly in the green this morning. The U.S closed lower overnight, however it seems reasonable to suggest we have already priced in their move with our strong sell down yesterday. Furthermore, the U.S is trading at their previous all-time high resistance and there is a good chance they use it as support from here. Coupled with our strong reaction to the RBA meeting yesterday, it isn’t surprising to see our market pause here this morning.
By breaking through 8,880 yesterday we likely have set our sights back at the lows of our market at roughly 8,750. There is also an interim support at roughly 8,000, which we reached yesterday and looks like we will hold for now.
Our move lower yesterday also broke any semblance of a longer-term uptrend line that may have been in play. The selldown from our highs has created a decent countertrend line, which we would need to break to have any confidence the selling will subside.
The market is acting like a petulant, hyperglycaemic child that has been denied more sweets. It has been addicted to interest rate for over two years now. With the RBA now withholding, the market has practically spat the dummy. Don’t be surprised if the tantrum lasts until 8,750. On a positive note, the U.S continues to trade in a longer-term uptrend. Though we have clearly disconnected from them for now, if they continue higher, it should help our market hold 8,750 in the short-term. From there, hopefully a piece of key macro-economic data will come in negative enough to pacify the market in the short-term. Of course, if key macro-data continues to come in hot, then holding 8,750 will be a struggle.
US Markets
US shares closed lower overnight, with technology stocks leading the selling lower. This was led by selling in Palantir, which fell 8 percent despite reporting strong growth numbers – likely because it was extremely overpriced. In general, talk in US markets centred around valuations being extremely stretched, and so the most stretched valuations (tech, discretionary, and communications) saw selling. Indeed, both Morgan Stanley and Goldman Sachs warned about the possibility of a correction here given the high price levels; which implies a market fall of 10 percent. Still, it is worth noting that the US market has defied most bearish calls for the past two years. In other news, the government shutdown is now the longest ever, with no end in sight.
Four of the eleven sector groups of the SP500 closed higher overnight, with Financials and Staples the best performers. Technology, Communications stocks were the worst performers.
Technically, the SP500 has been on an uptrend and potentially an acsending channel. Howevre, the index showed a renewed bearish candlestick overnight. This indicates that the index could fall back to the lower bound of the channel (the uptrend line) which currently sits around 6,700. The stochastic is also clearly pointing lower, confirming a likelihood of downwards movement. However, it may stall out befor that at the previous resistance level at 6,750, which could act as support. The recent peak also conincides with the round number of 6,900, which may now be resistance.
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