The XJO is expected to open lower this morning. The U.S overnight rebounded from the top of their longer-term ascending channel, though managed to retake intraday losses to finish practically flat. Their futures this morning are also flat.
Yesterday we sold off strongly on the back of stronger than expected CPI numbers across the board. The market, frankly, is addicted to rate cuts, and has been for years. It will ignore the crumbling walls, the cut off utilities, it will starve itself of any nutrition and live on practically nothing – as long as it gets its next rate cut hit. And with CPI numbers stronger than expected yesterday, that seems less likely. It was therefore not surprising to see our market throw a tantrum yesterday.
The stronger CPI numbers could also spell a more nefarious situation than simply a pause in rate cuts. When coupled with weakening economic data (like the poorer employment data we saw a couple of weeks ago), it indicates an economy that is both declining, yet getting more expensive – or in essence, stagflation.
The RBA has one lever: raise interest rates, or lower interest rates. If CPI is increasing, they will want to raise interest rates and “cool the economy”. If the economy is declining, they will want to lower interest rates and “heat the economy”. What happens when both are happening at the same time? The RBA can’t really do much. Of course, it is early days, but it is an existential risk that our market will be weary of if we keep seeing these trends.
Yesterday we closed flirting with he 50 day MA. There is plenty of support around here too, as well as a potential uptrend line that comes in at similar levels. We should open near 8,880 – a key level of support, that was also the top of the consolidation range we traded in for practically all of September. If the U.S can at least hold ground, our market should be able to stabilise around here.
Otherwise, if the U.S sees some profit taking (which is quite warranted considering how overbought they look in the immediate term), don’t be surprised to see our market trading towards 8,750 – the bottom of the September selldown.
US Markets
US shares were mixed overnight, with the DOW JONES closing lower, the SP500 flat, and the NASDAQ higher. It was only technology related stocks that rose, with fairly strong selling in the rest of the market. This is in spite of the FED cutting rates overnight by 25 basis points, though this cut was completely priced in by the market. It could be that the market was also fully pricing in a December cut, but in a speech after the cut overnight FED Chair Powell declared that a December cut is not set in stone. Nor should it be with US inflation still much higher than the FED target. Also of concern for markets is the ongoing US government shutdown, and a huge hurricane building in the Carribean. Additionally, some company earnings guidance has disappointed – particularly META (Facebook) overnight.
Four of the eleven sector groups of the SP500 closed higher overnight, with Technology and Communications stocks the best performers. Real Estate, Staples, Materials, and Financials saw the most selling.
Technically, the SP500 has been on an uptrend and potentially an acsending channel. The index seemingly reacted to the upperbound of the channel overnight, with some selling from this level. This also conincides with the round number of 6,900, which may now be resistance. Should the index see some selling here, the previous trough around 6,650 is likely to act as support. The stochastic may also be starting to turn here, which could indicate some consolidation and/or profit taking.
Want to continue reading?
This is only an excerpt from todays TradersCircle Members Morning Market Update and doesn’t include the key data and charts our traders are keeping an eye on every day. Become a member today for this plus full length mid-day and end of day updates, trade recommendations, trade group webcasts, and much more!