The XJO is expected to fall strongly on open today with a drop of around 130 points expected. This should see the XJO open somewhere betweem 8,600 and 8,650.
The XJO fell strongly yesterday after better than expected unemployment numbers for October. This data was better than expected which means that RBA rate cuts are off the table for now. Overnight US markets also fell as the probability of another Federal Reserve cut dropped.
Markets love rate cuts, but it is clear that the current cutting cycle is coming to an end, this could mean a period of selling for markets.
Also denting sentiment is the recent Australian bank reporting, which was poor, and which could herald the end of the banking uptrends. For this to happen though, we might need to see some more strength in the miners, but iron ore prices have languished across the past week.
We will see some Chinese industrial and manufacturing data today and that could lead to a rise in iron ore and if so, the miners are likely to be the sector to lead the next rebound.
Technically, the XJO will test the next major support around 8,630 today on open. We would expect this level to hold, but if it does not, the XJO continue lower to the next level at 8,530 in the coming sessions. Should this level hold, we would expect a bounce back towards 8,740, which may now act as resistance.
After a big drop in today’s session and after some strong selling for all of this week, don’t be surprised to see something of a rebound on Monday.
US Markets
US shares tanked overnight with major selling across the three major indices. It came as investors reduced bets of further rate cuts from the Federal Reserve, due to worries around inflation. It was the tech heavyweights who led the selling. It comes with growing number of Federal Reserve policymakers in recent days have signaled hesitation about further interest rate cuts.Traders are pricing in about a 47% chance of a 25-basis-point rate cut in December, lower than last week’s 70% probability, according to CME Group’s FedWatch tool. Still, US markets remain on an uptrend for now, so unless we see a lower trough, we have to assume US markets will resume buying soon.
Energy was the only sector to rise overnight. The remaining ten sectors saw strong selling, with Technology, Communications, and Discretionary the worst performers.
Technically, the SP500 fell back to its uptrend line and potential support level around 6,740. The index would have to break below this level for further selling to look likely. The index may have now set a lower peak which could point towards a change of trend. We will need to wait and see if we see a lower trough though. Also sitting around this level is the 50-day moving average, which we will also need to watch closely here. Should these levels break we could see a move to the next level at 6,550.
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