The XJO is expected to open lower this morning following a reversal in the U.S on Friday night. Their market shed the gains from their previous two sessions and practically rebounded from all-time high resistance. Their futures are flat.
We should open near 8,650. Like the U.S, we will wipe out all of Friday’s gains. However, 8,650 is also the resistance we broke on Friday that represented the recent consolidation ceiling, so it looks like it may now act as support.
It seems the U.S does not know how to digest the recent Fed announcement. On the one hand, no foreseeable rate cuts is bearish. On the other hand, the Fed returning to QE is bullish. The whipsaw movement in response isn’t too surprising, but considering how long they have tracked sidewards at the top of the range, we should expect to see some directional movement soon. Of course, we are likely to continue following whatever they do.
Our market may still be trading in a broad downtrend – however, it isn’t that solid. If you squint, there seems to a couple lower peaks and troughs but not enough entrench it. In addition, we also seem to have just dog legged higher, which may be the beginning of a shallow uptrend. The conjunction of these two meek trends gives little to no indication of what this market may do next from a technical perspective.
Now that 8,650 has broken, the next key level of resistance is roughly 8,750. This is also where the 50 day MA comes in – the next logical stopping point for a small rally. The credence of a continued bullish move is likely to be bolstered if we do indeed manage to hold 8,650 as support today. However, we will still likely need to see the U.S at least retest their all-time high resistance, if not break through, to get there.
December can be quite a volatile month – another good reason to expect some movement. Sometimes we see a rally, then a fall, or vice versa. It can be a strong bearish month that leads into a strong January rally. Or again, vice versa. The “Santa Rally” can be early or late, or grand or minor. We should, by the very least however, expect movement this month.
Key macroeconomic data remains ever important, and we have a big week ahead. The U.S has employment data, retail sales figures, and PMI data all on Tuesday night. Our Wednesday could be quite a volatile session. The big news however is U.S CPI data Thursday night. As this week goes by, they will be looking for any hope of future rate cuts to go along with their QE. If data comes in weaker than expected, they should break higher. Otherwise, they may have a tantrum. Regardless, we should be expecting things to heat up.
US Markets
US shares fell on Friday, with US indices unable to break into all-time highs despite last week’s rate cut. The concern is now though that rates could be on hold for some time and indeed we have seen rising longer term bond yields as well as some policymakers speaking out against further easing in monetary policy. Nonfarm payrolls, consumer inflation and retail sales data are all due out this week and these data will no-doubt influence the market movements. US markets remain uptrend so we have to assume they will continue to grind higher until a potential disruption. However, don’t be surprised to see very slow upside movements from here, while a downside move, if driven by news, could be large.
Five of the eleven sector groups of the SP500 closed higher on Friday, with Staples the only sector seeing notable gains. Technology stocks saw the most selling, followed by Energy stocks.
Technically, despite the recent gains, the SP500 is still stalling at the all-time high peak from October. We will need to see the SP500 close above 6,920 for the bull run to look to continue in the short-term. Should the market close above 6,920, that could be a signal for a rise to the round number of 7,000 points. The good news now looks to be mostly out of the way though, so gains from here might be slow. Should the selling resume, we could see a move back to 6,550 index points.
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