Yesterday, our opening losses extended gradually through our session. U.S futures were starkly red, heralding their bearish open last night. We reached 8,750 key support and managed to bounce from it intraday, finishing near 8,780. With the cooling of commodities over the weekend, it wasn’t surprising to see our Materials lead the selling. They have almost technically corrected since the selling began on Friday. The banks did their best to keep our market elevated, but couldn’t hold the gains in the afternoon session, and sold down to finish practically flat – exacerbating our indexes falls.
Our selldown yesterday was also likely in anticipation of an interest rate hike from the RBA today at 2:30pm (AEDT). Media and bond markets are showing an expected rate rise, likely due to the strong CPI numbers we have seen lately, and an economy that remains practically at full employment.
However, there are good reasons to believe the RBA will pause for now and continue to monitor. It is their modus operandi to be reactive, rather than proactive, often maintaining a position of “wait and see”.
Rate cuts have largely fuelled our market’s rally over the past two years or so. It would be fair to say that raising them should be bearish for our market. Regardless of what the RBA does today, the market will be closely reading Bullock’s statement for future guidance. If they do indeed raise rates, the market will likely be looking for tones that suggest the rise is to balance things out, and not a return to a contractionary cycle.
Our market is in an unusual position for the moment. Our Materials have been doing a lot of heavy lifting, and strength in the U.S continues to guide us. However, unlike their market, which is expecting a rate cut soon, our market is staring down the barrel of a rate rise, with potentially more in the chamber. It makes it hard to suggest what the medium term looks like.
Yesterday’s move also broke our uptrend line, regardless of how you draw it. However, just because the line has broken, doesn’t mean our market is not still trading in an uptrend, which is defined by higher peaks and troughs. Our market’s uptrend may simply be shallowing out. Our expected rebound today adds credence to that idea, and yesterday’s move lower may simply be a false break. Alternatively, we could be seeing a formation of a channel, or a head and shoulders pattern, but there is little point suggesting that until we see more evidence over the next few weeks.
For now, we wait and see what the RBA says and does, and how our market reacts. Don’t be surprised if the big selling in gold and silver reverses, and that the recent cooling in our materials is simply an opportunity to buy the dip.
US Markets
US shares jumped strongly overnight, defying earlier weak futures to finish firmly higher. Strength came from chipmakers and other companies related to artificial intelligence. Google and Amazon both jumped ahead of their reports this week, which will provide some insight into the success of AI investing after a weak report from Microsoft last week. Currently, AI related stocks make up about 30% of the US share market. Overall, US markets are testing their all-time high levels, with small bouts of volatility doing little to break the market away from its peak.
Eight of the eleven sector groups of the SP500 closed higher, with Staples, Industrials, and Financials the best performers. Energy, Utilities, and Real Estate stocks saw the most selling.
Technically, the SP500 returned to the all-time high overnight. It has recently stalled around the all-time high resistance at 7,000 multiple times before falling back off to the 50-day moving average and potential short-term uptrend line. This leaves the index inside and ascending triangle pattern between that short-term uptrend line and below the all-time high resistance. We would need to break either the short-term uptrend or the all-time high resistance before another directional move will look likely.
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