The XJO is expected to edge higher on open this morning, near 9,090 at time of writing. The U.S closed higher on Friday night after retaking opening losses. Their market continues to hang around the 50 day MA, in the middle of the broad channel they have been trading in since roughly the start of the year. Their futures are flat.
Our market on Friday opened lower, but by close we had managed to rebound off the steep short-term accelerated uptrend line to finish practically flat. The previous session we had quite clearly rebounded from all-time high resistance, and this morning we seem set to test it again. This Puts our market right in the point of a short-term ascending triangle, and so we should expect a break imminently.
Typically, we would expect our market to break higher, in the direction of the underlying trend. However, there are a couple of solid reasons why our market could instead hold key all-time high resistance and break the short-term accelerated uptrend line.
Firstly, the accelerated uptrend line is unsustainable. Our market’s broader uptrend line, which we accelerated off a couple of weeks ago, comes in much lower – perhaps 8,900. Furthermore, we have moved quite away from our 50 day MA, which comes in just above 8,800 at this stage. Our market is likely due for a short-term pullback, and a rebound from all-time high resistance seems a good level to do that from.
Secondly, on a macro level, things remain murky at best, and further serious gains from here seem unjustifiable. It seems reasonable to suggest our market has not priced in the recent rate hike, or the prospect of further rate hikes. Keep in mind, it was the cutting cycle that largely helped our market rally the past couple of years. Furthermore, the disparity in our projected monetary policy against the U.S has led to a strengthening AUD, which in turn puts pressure on an already overheated mining sector. Coupled with a recent selldown in Iron Ore prices and corrections in other key commodities, our miners also seem due for some profit taking.
Thirdly, the U.S supreme court over the weekend announced Trump’s tariffs as unlawful, and of course, Trump’s response was to instead demand his universal tariffs increase by 10 per cent to fifteen per cent. However, the news has not caused any selling in U.S futures at time of writing. Now that the tariffs have been deemed unlawful, it may mean that all the tariffs the U.S consumers paid may be “refunded” to the businesses affected. Which, aside from being a tremendous wealth transfer from the consumer to private business sector, could be seen as positive for U.S listed companies. Furthermore, the TACO trade has been well established by now.
Finally, there is a very real threat of escalation in the middle east. Israel and the U.S look primed for further skirmishes and attacks on Iran, which can only add further uncertainty to a dreary backdrop.
Don’t be surprised if our market does indeed break into fresh all-time highs, however. We clearly want to – and markets can take time pricing in the broader issues. However, if we do indeed break higher, selling should be imminent. It is very uncharacteristic for our market to make consecutive fresh all-time highs, and in this environment, seems even more unlikely.
We are in the last week of reporting season. Consider having a look at reporting strategies for companies reporting from Wednesday onwards. From a Macro perspective, the big news will be local CPI on Wednesday. We want to see CPI come in lower than expected to help keep the rate hike away. Otherwise, if it comes in stronger than expected it would only add another bearish pressure to our market.
US Markets
US shares closed higher on Friday after the US Supreme Court ruled that Trump’s tariffs were illegal. Markets loved the idea that these taxes would therefore be removed. Over the weekend though, perhaps as a tantrum, Trump announced that he would levy another 15% global tariff. All of this obfuscates some pretty bad data on Friday, with stronger than expected inflation and lower than expected US GDP. Should the Surpreme Court ruling not have come out, markets would likely have fallen on Friday.
Nine of the eleven sector groups of the SP500 closed higher on Friday, with Communications, Discretionary, and Real Estate the best performers. Energy stocks saw the most selling.
Technically, the SP500 showed a bullish candlestick to bounce from the support level at 6,800 on Friday. With the index now potentially in a channel between this support and the all-time high at 7,000. Friday’s candlestick indicates a technical rise to the all-time high resistance at 7,000. The index also managed to break above the 50-day moving average at 6,900 on Friday, which is also a bullish sign. The stochastic has also turned higher near the bottom of the range, which also suggests gains. We have to assume 7,000 will hold as resistance for now, but if it breaks, further upside would be expected.
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