The XJO is expected to rally on open this morning following a strong rebound in the U.S on Friday which saw their market reverse most of their previous session’s losses. Their futures have edged into the red.
On Friday we finished strongly in the red, selling off through the session. We had been consolidating along 8,200 support, waiting for further leads from the U.S. When they broke lower Thursday night, so did we on Friday, moving through 8,200 and settling on the next key level of 8,150. This morning, we will rebound from 8,150, with an expected open back at 8,200, which our market will now use as a resistance level.
The rebound overseas seems like it was built on very little. Markets were likely simply too oversold in the immediate term and some mean reversion was warranted. It is hard to believe at this stage that we have seen the bottom of the recent selling and that the rally today is the beginning of an extended move higher. Unless U.S futures push into the green today, promising further gains tonight, our market seems likely to hold 8,200 and for most of the rally to be priced in on open.
Our recent selling culminated all but touching the 200 day MA – the most logical target in our selldown. The 200 day MA comes in at roughly 8,130. With our market reaching 8,150, it would be reasonable to suggest we practically reached that target. Though, even with the rebound this morning, it doesn’t seem likely we are finished with it, and that we will flirt with it once again in the near future.
Markets are very volatile at the moment. It would be an understatement to say there is a lot going on, both on a macro and micro economic scale, and with global politics. Earnings was disappointing, with the only reasonable conclusion being that much of our market remains overvalued. In the U.S, it wasn’t much better. Inflation will continue to remain the lurking horror in the shadows, especially with economies slowing down. The Fed have become more hawkish since late last year, and the RBA will not commit to further rate cuts locally.
Trump remains the biggest wild card. He reminded us of this over the weekend with his now infamous meeting with Zelensky. Tariffs continue to be the biggest worry though, and it is unlikely that he has finished implementing them, or by the very least threatening them. Key cuts from DOGE’s tirade of slashing government employment may also have added to inflation, though this is yet to be seen clearly. In essence, the shake up in the world largest economy is likely to keep markets volatile.
Rallies in the U.S on Friday night were across the board, but their strongest gainer was their Financials which moved just over two per cent higher. Their Materials were their second strongest, moving only 0.86% higher. It would be reasonable to therefore expect our Financials, mainly the banks, to have a strong relief rally today. Though, we need to remember they remain starkly overvalued as a whole. The Financial index should move back to the comfort of the 50 day MA and pause.
Ultimately, today’s expected move higher is a welcome relief from the dire selling we have seen since our highs. However, it is hard to expect our market to hold on to the gains. 8,100 and 8,050 remain reasonable targets, and for our market to continue to flirt with the 200 day MA. Any continued rally seems like it should run out of gas at 8,300 to 8,350 key levels which is also where the 50 day MA comes in. If things remain uncertain, don’t be surprised to see our market consolidate in this loose range in the medium term whilst markets digest everything going on.
In the week ahead, the U.S has some PMI data tonight. Tomorrow, we have local Retail Sales numbers, and the minutes from the last RBA meeting. Retails Sales for January are meant to increase from -0.1% to 0.3%. But it is likely the minutes of the previous RBA meeting that investors will be focusing on as it may give further insight to future guidance of local monetary policy. On Wednesday we have local GDP data. There is expected to be some improvement here, increasing from 0.8% to 1.2% from the same time last year, and from 0.3% to 0.5% from the previous quarter. On Wednesday night, the U.S will have some further PMI data, and to finish the week, on Friday night the U.S has Unemployment figures – though this only can only affect our trading next week.
US Markets
US shares rebounded strongly on Friday, with each of the three major indices finishing firmly in the green and around the highs of the session. US shares found support as the market started to price in a higher likelihood of rate cuts moving forwards. This is due to forward indicators suggesting that US economic growth is starting to turn negative. This is even before the majority of Trump’s promised tariffs have been implemented, which are likely to make things worse. Technically, the US market does look like staging a potential rebound here, but events over the weekend seemingly pushed the US further from its global allies and the next round of Trump tariffs are scheduled to be implemented on Tuesday. Don’t be surprised therefore, if a rebound takes a while to materialise.
Every major sector of the SP500 closed higher on Friday, with Financials the best performers, followed by Discretionary, and Technology stocks. Every other sector also saw notable gains.
Technically, the SP500 bounced off potential support around 5,850 index points. This could indicate a move back towards 6,000. Should the index close above 6,000, it would indicate a sideways channel between 5,800ish and 6,100ish to the upside. Should the index resume falling, it will need to close below 5,800 for further selling to look likely.