The XJO is expected to open flat this morning following a lackluster night in the U.S. Their futures are also flat.
Yesterday we managed to finish marginally in the green. It is clear however that we are hanging around the convergence of the 200 day MA and 100 day MA, and using 8,150 as key support.
8,250 is the recent high and next key level of resistance. The consolidation over the past few days has given our immediate indicators like the stochastic and Bollinger bands to normalise and decompress – though they still remain in overbought territory.
Though the uptrend line has clearly broken, we must assume that the trend remains positive and that the next move is bullish. The uptrend was not sustainable, and taking a step back and looking at the market more broadly, we should assume the uptrend is shallowing out rather than reversing.
The Fed was cautious overnight in its rhetoric after keeping rates on hold. Trump has reacted with vitriol in the past to Powell and threatened to somehow get rid of him. This has caused falls in the past, so if he throws a tantrum again we very well could see some proper profit taking come in.
US Markets
US shares managed to close higher overnight in a whippy, back-and-forth sessions. US markets rose on news that Trump trade officials will meet with Chinese counterparts, and though they didn’t rise as much as their futures were suggesting during the Australian session yesterday. Overnight we also saw a US Federal Reserve meeting, where US interest rates were kept on hold (as expected). The FED committee noted “the risks of higher unemployment and higher inflation have risen.” Given this, Fed Chair Powell communicated that they would hold off to see what the wash up of the situation is before their next move on rates. Regardless, we do expect the US economy to head to recession unless they can strike a bunch trade deals – particularly with China. On Thursday night the next Federal Reserve meeting will be held and though no rate change is expected here, investors will be looking for any signs that the tariffs will delay rate cuts, or any sign that the FED expects a deterioration in the economy.
Eight of the eleven sector groups of the SP500 rose overnight, with Discretionary and Technology the best performers. Communications stocks saw the most selling, with Google trading firmly lower.
Technically, despite stalling somewhat over the past few sessions, the SP500 has now broken the downtrend line that has formed since February. This should indicate a move back to the peak of late March around 5,775, which is also where the 200-day moving average sits. However, should the index break below 5,500 without 5,775 being reached, that would be a very bearish sign.
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