The XJO is expected to rally on open this morning, near 8,950 at time of writing. This follows a positive session in the U.S overnight, which saw their market retake practically all of their previous session’s losses. Their futures this morning are flat.
Yesterday we sold down heavily, as the all the bad news we had managed to dodge finally caught up with us – namely strong CPI and GDP, confirming another rate hike, a consolidating U.S market, and war with Iran. It was about time.
It seems we overshot to the downside, likely spurred on by negative U.S futures during our session yesterday. They did not play out however, and our market will retake some of the lost ground yesterday.
We returned to the 50 day MA, at roughly 8,880 and bounced from it intraday. It is not surprising to see our market return to this level as it offers a point of equilibrium and comfort in the short-term. We often use the 50 and 200 day MA’s as targets and support/resistance levels. If we fail here and the selling continues, the 200 day MA is the next clear target, and coincides with a key support at roughly 8,750.
Yesterday’s selling also brought us to key support at roughly 8,900, and possibly the underlying uptrend. It is tentative, but the expected bounce this morning will help confirm it. If U.S futures improve today, then 9,000 looks like the next target of resistance.
From here it is hard to say. We are still trading in a broader uptrend, so we should assume it will hold. The selling yesterday was more than warranted and overdue. However, if a resolution to the war in Iran is expedited – and the U.S looks like they want to wrap things up quickly like they did in Venezuela, then we could see our market maintain its trend.
On the other hand, our market will eventually need to grapple with the issue of rising interest rates. CPI is too strong, and GDP is the strongest we have seen it in practically three years. Moving to a contractionary cycle should be bearish for our market – and yet we continue to trend higher.
US Markets
US shares rebounded overnight, with buying across all three major indices. The indices retraced their losses from the prior session, and oil prices stablised somewhat (leading to selling in energy stocks). The movements overnight show that the market is of the opinion that this conflict will be short, successful for the US and Israel, and will have minimal consequences for the oil market. It also shows that there is still plenty of liquidity ready to buy up dips on the market. US markets were also boosted by a private US payrolls report, which increased the most in seven months in February, a sign the economy might be better than expected.
Eight of the eleven sector groups of the SP500 closed higher overnight, with Discretionary, Technology, and Communications leading the charge. Energy stocks saw the most selling.
Technically, despite the recent selling, which saw the S&P500 trade as low as 6,710 intra-day, the index has always managed to close above the key support level at 6,800. With the index in a channel between this support and the all-time high at 7,000. With the hold of support and the bounce overnight, we would expect an eventual rise towards the resistance at the all-time high of 7,000. Should the index fall however, and close below 6,800, we would expect further selling. We would need to see a break above 7,000 for more gains to look likely.