The XJO is expected to open higher this morning following a rebound in the U.S on Friday night. The SP500 rebounded off key support and returned back to the comfort of their 200 day MA. However, U.S futures are starkly in the red, so by the time the market opens this morning, or once morning trading is out of the way, don’t be surprised to see our market in the red.
On Friday our market smashed through key support at 8,050 – a level that we have not traded below since pushing above it back in September last year. It represented the lows of our market, and was originally a good target for our market to find a bottom. For a moment there it looked like we may hold it and continue to trade around our own 200 day MA, but unfortunately our market just sort of gave up. We barreled through 8,000 and stopped at the key level of 7,950, wiping off about five months of gains.
7,900 is the next key level of support. It was support in July and September last year, and represented all-time high resistance which our market tested several times through April and May last year. It wouldn’t be surprising to our market pause somewhere around here and for a much needed relief rally to occur. Short-term indicators are stretched and a mean reversion is warranted – but we have been saying that for a week or so now and markets keep selling.
We have overshot to the downside compared to the U.S. We have returned to a familiar state where our market is more than happy to share in U.S losses, but reluctant to share in any of their gains. Therefore, any relief rally or mean reversion seems likely to be meek and weak willed. The aggressive downtrend line remains in play and comes in at roughly 8,050 to 8,100. The steepness of that downtrend line is unsustainable, giving further credence to an incoming relief rally or at least some mild consolidation. When is hard to know.
With Trump at the steering wheel, it is anyone’s guess as to where things are headed. Markets are certainly sending him a message, and countries he has imposed tariffs on, namely Canada, Mexico, and China, are pushing back aggressively. The EU and NATO have rejected his handling of the Ukraine and Russian war. It is not clear if America has many allies left (except perhaps Russia, ironically), at least on the surface. If Trump continues to be dramatic and unpredictable, and continues to push America towards isolation, then it seems the most likely outcome is a recession. Of course, ironically, that recession wouldn’t be isolated to the U.S, and likely have far reaching consequences to other nations, including ours.
Markets were also in a good position to sell. Company valuations are stretched, even after the selling. It is the most expensive our market has ever been. There is little to be optimistic about. The selling makes sense.
The big news ahead is U.S CPI Wednesday night. It is expected to drop slightly. It may be the trigger the U.S needs to see a rebound. There is also U.S PPI on Thursday night, but aside from that it is a fairly quiet week for macro-economic reporting. There is local consumer and business confidence tomorrow – it will be interesting to see the average sentiment.
US Markets
US shares closed moderately higher on Friday, with each of the three major indices closing in the green. Some buyers returned with indications that compromises could be made on some of the Canada and Mexico tariffs, though things remain uncertain. Investors were also unsure of how to respond to unemployment data for February, which showed an unexpected rise in unemployment, with fewer jobs created than expected. While this isn’t great, it does increase the chance of interest rate cuts moving forwards. Still, markets will be mostly focused on tariffs moving forwards. More tariffs are expected to be implemented this week, with Steel and Aluminium tariffs of 25% to begin on Wednesday. Additional tariffs against remaining US trading partners are expected on the 2nd of April. Should tariffs remain in place for any period of time, the US economy will start heading towards recession. So any news of tariffs being put into effect will be met with selling and any reprieve on tariffs will be met with buying.
Eight of the eleven sector groups of the SP500 closed higher on Friday, with Utilities, Energy, and Technology the best performers. Staples saw the most selling, followed by Financials.
Technically, the SP500 returned to the lows of October and November, around 5,680-5,700 index points, before rebounding on Friday. Should the index break below this level, the next level to watch would be a technical correction (10% fall from the peak), which would come in around 5,540. Should the market continue to rebound, the previous support at 5,850 is likely to act as resistance.
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