The XJO is expected to edge higher this morning despite a pullback in the U.S overnight. Their futures are flat.
Tech led the selling in the U.S, dragging their indexes down. Tech is not well represented in our market. Our two largest sectors, which make up roughly 55% of the XJO, are the Financials (~30%) and the Materials (~25%). Both of those sectors were in the green in the U.S, and coupled how we have been largely running our own race lately, helps explain our market’s resilience this morning despite the strong pullback overnight. Also, CBA is going ex-div today, which will shed about 20 points from the XJO.
Yesterday we pulled back and held onto our lows. We shed about two thirds of Friday’s and Monday’s combined gains into new highs. We ended up finishing on 8,900 – the previous all-time high resistance, now support. This morning, we should hold it.
Yesterday the accelerated uptrend line broke. It was not sustainable. The market has looked overbought in the medium and long-term for quite some time now, but over the past week or so, has also been overbought by short-term metrics too. For example the stochastic have been in the overbought area for over a week now. They have crossed and are starting to point down which would typically indicate selling, but don’t be surprised if we see mean reversion through our market tracking sideward rather than taking profit. Either way, it seems overdue.
The underlying uptrend comes in at roughly 8,750. If there is a bout of selling, then 8,750 to 8,800 seems like the most logical targets for now. However, as trends go, if it is a slow gradual selldown with doses of consolidation, the trend line could come to meet the market at higher levels. It is hard to suggest which seems more likely.
Of course, the market could easily continue to track higher to sidewards. Indeed, we continue to assume that it will do so. However, considering it has had a good measure of “higher”, it seems more likely we get more “sidewards” for now.
Regardless, it feels like we are on a precipice, but can’t do much else than continue to trade the technicals – albeit with caution and awareness.
US Markets
US markets were mixed but mostly lower overnight, with the SP500 and the NASDAQ closing notably lower, while the DOW JONES closed higher. US economic data was mixed overnight, with US GDP forecasts from the Atlanta Fed coming in lower than expected. This week will be all about the Federal Reserve, with the Fed meeting minutes released tonight, and with the Fed’s yearly policy symposium at Jackson Hole taking place. We will see some speeches from Jackson Hole tonight, but tomorrow night will be the big kahuna Jerome Powell; he will be the most important one for markets. Markets are continuing to grind higher with interest rates expected to be cut, and with US government money printing. The US government will continue to print money at increasingly rapid rates, so the only thing that could change this market is if interest rates stabilise and/or head higher. This would be the case if inflation continues to rise from here – so look for any commentary on that from the FED this week.
Seven of the eleven sector groups of the SP500 closed higher overnight, with Real Estate, Staples, and Utilities the best performers. Technology and Communications stocks saw strong selling.
Technically the SP500 seems to be grinding between their all-time high resistance at roughly 6,480, and their previous all-time high resistance (now support) at roughly 8,400. They remain in an overall uptrend. Their recent acceleration that began at the lows of the start of August seems to be running out of steam. The stochastic is now pointing down from overbought area and has crossed, indicating a change in direction. It wouldn’t be surprising to see their market engage in some healthy mean reversion, and return to lower support levels and potential underlying trend lines around 6,300. Finally, the last time they met with the 50 day MA (currently around 6,250) was back at the end of April – so they are due.
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