The XJO is expected to edge lower on open this morning following a continued move lower in the U.S overnight. Their futures have edged into the green.
Yesterday we opened higher but sold off through most of the session. We retested key support at 8,350 again, but rebounded from it intraday to retake roughly half the day’s losses. It seems likely we retest and hold this level once more today.
U.S CPI is tonight, which may help explain some of their recent profit taking as an act of caution, alongside some healthy mean reversion. If they break lower, then expect our market to follow suit, with the next clear target at roughly 8,300. Indeed, our market has key supports at roughly every 50 point increments. 8,300 is also where our 50 day MA comes in, marking it as a point of safety in an increased selldown.
If the U.S rebounds with renewed vigour, which seems more likely, then our market should feel comfortable retaking some of the past week’s selldown. We have now created a stronger base and cooled enough to warrant a Christmas rally (despite our economic condition). Don’t be surprised if fresh highs are made as the year closes out.
The miners led the charge higher yesterday. Chinese announcements have helped, but it is also simply our materials playing catchup to a recent rally in iron ore that has managed to hold its highs. Unsurprisingly, much of the material’s rally yesterday was likely funded by a selldown in an irrationally overheated financial sector that was overdue for a dose of rational profit taking. If our market is set to push higher, then we should expect some or most of that strength to continue to come from the materials. The banks may join in too, and knowing our market, seems almost likely given the nature of our index lately.
Finally, the RBA statement yesterday was much of the same as the past few. However, it could be interpreted to be more dovish. Though they maintained a “wait and see” attitude, they did say that inflation is starting to move towards target levels. This is a comforting thought for our market which was worried it would potentially not se a rate cut next year.
US Markets
US shares closed lower again overnight, with each of the three major indices finishing in the red. US investors continue to take profits, which shouldn’t be surprising given the overall level of markets. There was a lack of major news and events overnight, so prices instead drifted lower after yesterday’s bearish candlesticks. The major event for this week will come with tonight’s CPI (inflation) for November. While US economic data has been strong for the past year, inflation has been sticky, should this inflation data come in strong, it could disrupt the likelihood of a third consecutive rate cut at next week’s final Federal Reserve (FED) meeting for the year.
Only three of the eleven sector groups of the SP500 closed higher overnight, with a big jump in Communications due to a rise in Google. Real Estate, Technology and Materials stocks saw the most selling.
Techically, the SP500 may have found some resistance at 6,100 on Friday and overnight showed a couple of bearish candlesticks. This could indicate a move back to the previous all-time high resistance at 6,000, which may now act as support. However, tonight’s move in the market will depend on the response to a very important inflation reading (which will determine whether there is another rate cut next week). So the technicals may not matter for the next couple of sessions.
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