The XJO is expected to open flat this morning. The U.S opened from their holiday only marginally higher, and their futures are flat as of writing.
Yesterday we sold off after the RBA attached a hawkish tone to their cut of the cash rate. The market had already priced in the cut and wasn’t pleased that the RBA was reluctant to promise any more. It was the same old position of “wait and see”.
Much of our bullish move since roughly early to mid-January was on the sugar rush of further rate cuts, with our market making several fresh highs whilst the U.S virtually did nothing. Now that the message from the RBA is to not expect any more for now, it’s not surprising to see our market pull back and normalise – especially considering that our earnings season has been underwhelming to say the least.
The selling yesterday isn’t indicative of more to come. Instead, it seems more likely that we simply return to following the U.S rather than continue to run our own race. If the U.S can manage to break their key all-time high resistance they have flirted with the past couple of sessions, strength would likely to return to our market too. If the U.S rebounds lower, our market should do the same. Regardless, until we see proper movement from the U.S, our market seems likely to track sideward in a broad range for now.
8450 is a key level of support, one that we have held the past two sessions, and which we are set to flirt with again this morning. This is also roughly where the uptrend line comes that largely represented the optimism surrounding rate cuts. Now that these expectations have changed, our market is sobering up, and the uptrend line will struggle to stay valid for too much longer.
With any serious selling the first clear target is both the key support at 8,350 and the 50 day MA which comes in at similar levels. Otherwise, 8500, 8,500, and 8,600 remain the clear resistances on the march to all-time highs.
Looking ahead, the U.S has the minutes from their last Fed meeting tonight, which could easily cause movement. Tomorrow, we have local unemployment data. Things could easily remain volatile locally depending on how these two events are digested by markets.
US Markets
US shares closed higher overnight, with prices finishing in the green despite trading firmly in the red at points. US shares have had plenty of reasons to fall, but they remain near all-time highs with US government spending helping to keep them there. Regardless, they are still vulnerable to short shocks down, and don’t be surprised if we see something like that soon – perhaps with a tariff announcement or the like.
Eight of the eleven sector groups of the SP500 closed higher overnight, with Energy, Materials, and Utilities the best performers. Communications stocks saw the most selling.
Technically, the SP500 is attempting to break above the all-time high resistance level which sits just above 6,100. We will need to wait and see if this level holds or breaks. Should we see a break above this level, we should see further gains, though its hard to say where the target would be. To the downside, there is key support at roughly 6,000 points, which is also close to where the uptrend line comes in. This leaves the SP500 inside an ascending triangle, waiting for a directional breakout.
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