The XJO is expected to rally on open this morning following gains mostly across the board in the U.S Friday night. Unsurprisingly, tech was flat. The SP500 bounced from a very key level of support, indicating they aren’t willing to make new lows just yet. Furthermore, their futures are flat.
8,400 seems to be the key support that we have held for the past week or so as we try to stem the selling. We rebounded from it roughly on Thursday last week, but then sold down to test it again on Friday. This morning, we will have another bounce from it, with an expected open near 8,500.
8,500 is roughly where the 200 day MA comes in, which means our market will be trading at the same average price it has been bought or sold at for the past 12 months. Our market will be at a sort of long-term equilibrium, where from a long-term perspective, it is neither overbought nor oversold. It is a good level for us to hang around whilst we wait and digest the recent selldown.
However, our index is entering correction territory, and both our market and the U.S are showing early signs of a downtrend forming. Coupled with stretched valuations, an AI tech bubble that could be bursting in real time, and perhaps no rate cuts in the near future, it seems reasonable to suggest that the selling should continue in the medium term. So far, we have fallen roughly seven per cent. A correction is roughly ten per cent (give or take). That would put our market down at roughly 8,150 – about another 350 points lower.
There is also a tentative downtrend line that comes in at roughly 8,675 – though it has quite a steep gradient, so by the end of the week it will come in at roughly 8,600. There is also a tentative accelerated downtrend line that has stated to form. It comes in much sooner at roughly 8,500, which we will test this morning. If selling is to resume tomorrow, then we will likely confirm that accelerated downtrend line. If sidewards movement, or a small relief rally is in order, then the broader downtrend line is the next key target.
Macroeconomic data remains important to market as it continues to shape its views on the future of monetary policy. Locally, we aren’t expecting cuts this year anymore after a slew of strong enough data, which has triggered and exacerbated selling over the past month or two. The U.S, which had enjoyed a renewed rally recently on the prospect of two more cuts this year, isn’t sure it will receive one for December anymore, and will be looking to macroeconomic data to gauge the likelihood going forward.
In the week ahead, we have U.S retails sales numbers and consumer confidence numbers tomorrow night. On Wednesday we local CPI data at 11:30am (AEST). We have seen CPI slowly creep higher over the past several months, the market will want to at least see that trend stop. On Wednesday night, the U.S has GDP data and PCE data.
US Markets
US shares rebounded on Friday, with each of the three major indices closing higher. US markets rebounded but tech was again a laggard but about 450 companies on the S&P 500 finished in the green, sending the gauge up 1 per cent. Investors were enthused by comments from New York Fed president John Williams, an ally of chairman Jerome Powell, who he said there was room to ease borrowing costs in the near term. US unemployment last week also ticked slightly higher and this could open the door for a FED rate cut in December – which is now starting to look quite likely. Given this is the case, we could see one more push back towards all-time highs from here.
All eleven sector groups of the SP500 closed higher on Friday, with Communication, Healthcare and Materials the best performers. Most sectors saw notable buying, with only Utilities and Technology shares closing relatively flat.
Technically, the SP500 broke several key levels last week but held the key level of 6,550 on Friday. Desipte the hold, the index didn’t really show a strongly bullish signal, and the momentum in the short-term still looks pointing to the downside. This could change if we see another bullish session from the US tonight but we will likely need to see the index back above the 50-day moving average at roughly 6,710 before it starts looking bullish. The stochastic is also turning to point higher from the oversold range, which could also indicate a bit of a turn about to come here. Should the index fall off from here and break below 6,550, we are likely to see a technical correction.
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