The XJO is expected to rally on open this morning and test the top of the recent consolidation range at roughly 8,650 at time of writing. This follows a positive U.S session which saw their market finish firmly in the green, and also testing their own key level of resistance.
It seems the Fed’s statement this morning was able to shake the dust off the U.S market, and their reinvigoration is directly translating to us this morning. U.S futures have also moved slightly in the green, but not enough to confirm any break or an extended move higher.
We should expect most of the rally to happen on open this morning. Considering the U.S is showing no signs of a continued move into new territory at this stage, we should expect 8,650 to hold. Of course, if U.S futures change for the better, then our market may have the courage to follow suit. It seems likely though that we wait for further proof from the U.S tonight and have the weekend to observe before committing.
US Markets
US shares jumped overnight after the Federal Reserve cut rates, but perhaps more importantly, they ruled out any rate rises any time soon and confirmed that it would buy short-term bonds, expanding its balance sheet. Essentially a return of quantitative easing. This is apparently being done to ensure ample liquidity in the banking system. To be honest, it doesn’t look like US markets are devoid of liquidity at the moment, and these freed up funds could easily flow to rise assets. This is a more positive outcome than we were expecting, and it should allow US shares to move to new all-time highs. However, don’t be surprised if a new high is not too far from the current levels, as wider concers around an economic slowdown and extreme valuations are also weighing on prices. It is worth noting that this ‘liquidity’ move is not a vote of confidence in the strength of the US consumer, who is definitely struggling at the moment.
Nine of the eleven sector groups of the SP500 rose overnight, with Industrials, Materials, and Discretionary the best performers. No sector saw notable selling.
Technically, despite the overnight gains, the SP500 was unable to close at a fresh all-time high, instead, closing just below its peak from October. We will need to see the SP500 close above 6,920 for the bull run to look to continue in the short-term. Should the market close above 6,920, that could be a signal for a rise to the round number of 7,000 points. The good news now looks to be mostly out of the way though, so gains from here might be slow. Should the selling resume, we could see a move back to 6,550 index points.
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