The XJO is expected to edge lower on open this morning following a continued pullback in the U.S overnight. Their futures have edged into the green.
Our muted open is not too surprising. Even though the U.S was lower again overnight, the Financials were flat, and the Materials actually rallied almost one per cent. They are our two largest sectors that make up about 55% of the XJO. Furthermore, the U.S bounced from key support intraday overnight, managing to retake half of their intraday losses into the close, and their futures have moved into the green this morning. Finally, our market has already pulled back significantly, and in quite a short-period of time. We are trading at a key support, and possibly holding a broader underlying uptrend line that represents the overall bull run we have seen since October 2023. Even though the sell down was warranted, and further selling would make sense, for now our market is oversold in the immediate term and there is room for a relief rally. The stochastic are in the oversold area, and we are trading at a slight discount in the short and medium term when looking at the 50 and 100 day MAs respectively.
Last night’s move in the U.S now puts both indexes at roughly the same position in the short term. Both indexes have fallen about 3.5% from their highs, and both are trading marginally below their 50 and 100 day MA. The U.S looks like it is happy to hold support and their broader underlying uptrend line for now (like our market). If they rebound, we should too – albeit likely with less enthusiasm.
Of course, the question is, will they? Even though there are plenty of reasons to continue the selling, we shouldn’t expect the “buy-the-dip” mentality to have broken yet. We have been trading at irrational levels for a while, and though cracks are forming, we shouldn’t assume markets have suddenly sobered up to reality. We could easily see another run from here, but it does feel like we a reaching a precipice.
US Market
US shares closed lower again overnight, with the SP500 and NASDAQ finishing in the red, while the DOW JONES managed to eke out a gain. US shares fell with a drop in consumer confidence, with the start to Trump’s presidency weakening optimism in the economy. The major event for this week will occur after US markets close tonight, with a earnings report from NVIDIA. The market has been bought up with the view that AI will increase company earnings, so a strong report here could show strong utilisation of AI. However, a weak report here could trigger selling. Regardless, US markets do look a little oversold after a weak week, so don’t be surprised to see some dip buying and a rebound.
Five of the eleven sector groups of the SP500 closed higher overnight, with Staples and Real Estate stocks the best performers. Communications, Energy, and Technology stocks saw the most selling.
Technically, the SP500 is currently testing its longer-term uptrend line, which formed since the rebound in October 2023. With a break lower, we could see a move back towards 5,870 index points. However, we have to assume a bounce for now, which could suggest a move back towards 6,000 index points.
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