The XJO is expected to edge lower on open this morning, near 9,000 at time of writing. The U.S overnight closed practically flat after rebouncing off their all-time high resistance again, shedding their intraday gains. At this stage, they look locked into their sidewards channel. Their futures are flat.
Yesterday practically rallied through our entire session, with both the Financials and Materials enjoying strong gains. The charge was led by CBA, whose earnings report was clearly received well by the market. As usual, the other banks were dragged higher with it, but not to the same extent.
We finished well above resistance at roughly 8,975 to 9,000, and this morning, we may test it as support. Our market has rallied roughly 3.5% since our recent lows over the past three sessions. We are likely overheated in the short-term and due for a pause. Regardless, it seems we want to join the U.S, with sights on our all-time highs at roughly 9,100 – only about 100 points away.
In the medium term, it is hard to suggest we will hold optimism with interest rates potentially increasing this year. Our disparity with the U.S also bolsters our dollar, which could pressure on our miners. Furthermore, our miners have had an extraordinary run for the past year or so, and when looking at their chart, it would be hard not to expect some broader mean reversion. Their index is trading well above the 200 and 50 day MA for example.
In the short-term, despite our sights set on all-time highs, the recent rally is unsustainable, and we have moved quite far away from the underlying trend. It seems likely we pause and start to form an acceleration. Of course, the underlying threat of selling is always present, and with the recent volatility, we shouldn’t be surprised if we see this market tank as fast as it did rally. It seems we will have a better idea next week.
US Markets
US shares were flat to slightly lower overnight after stronger than expected US jobs data. While its good to have strong employment, the market response was uncertain as a stronger-than-expected employment report also fueled bets that the Federal Reserve could slow its interest-rate cuts. The majority of traders are still banking on at least one 0.25% FED cut in June, but the probability that rates would hold steady that month has crept up to 41% from 24% according to the FEDwatch tool. Still, the data shows that the US economy is not in need of rate cuts, so as long as inflation data doesn’t press higher, and as long as there are no unexpected shocks, its hard to see much selling in the near term.
Eight of the eleven sector groups of the SP500 closed higher overnight, with Energy the best performer, followed by Staples and Materials stocks. Financials and Communications stocks saw the most selling.
Technically, the SP500 is currently in the process of testing the the all-time high resistance at 7,000. Its worth noting that the recent trough was no higher than the previous, which could indicate more of a sideways movement going forward, though we will have to wait and see. Should 7,000 break, we are likely to see more directional gains.
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