The XJO is expected to edge higher on open this morning, despite a small pullback in the U.S Friday night. Their futures are flat.
Our market is going through an intense rotation from the overvalued banks into our oversold miners. Key commodities like iron ore and copper have rallied extensively on the back of Chinese stimulus announcements last week, which have driven our materials up roughly ten per cent. With the broader market unwilling to push too much higher without the U.S doing so first, cash is cycling from our largest sector (financials) which has fallen about five per cent, into our second largest sector (materials) – thereby keeping the index relatively stable near all-time highs. There has been more volatility in the XJO on the back of this rotation, but for the most part we are trading all-time highs like the U.S.
The financials have practically returned to the 50 day MA, a healthy mean reversion that hasn’t happened since the start of August. The materials have shot up through all the key MAs and settled just above the 200 day MA. Both indexes are at a point where it would make sense to see some reversion.
The XJO is likely trading in an accelerated uptrend since the lows at the start of August. We have seen both higher peaks and troughs forming, and there is a clear uptrend line that connects those troughs comfortably. The most recent bounce was on Thursday last week, which we meekly followed through with on Friday. The U.S is grinding higher, but without any serious commitment. Each day seems passive and indecisive, yet they are slowly making fresh highs. Our market wants to follow but is going through more volatility considering the rotation of our sectors at the moment.
This morning, we are likely to test all-time high resistance at 8,250 once more, with an expected open near 8,230. In the immediate term, our market doesn’t seem overbought. The short-term stochastic are trading in the middle of the range, we are comfortably inside the Bollinger bands, and we aren’t trading too far away from key MAs. Technically, our market is in a good position to continue higher, and we should assume it will (despite how you may feel about it fundamentally). We of course remain cautious, and it is likely that one day we wake up to a crash, but until then we should assume the index will keep making fresh highs alongside the U.S.
Data remains key. Now that the U.S has received their interest rate cut, what now? Well, they are likely still wanting to see numbers that support both a soft landing, but also further cuts in the coming months. Our economy is in a completely different scenario, but our market doesn’t seem to care.
In the week ahead, Powell will be speaking tonight. Last week some of the Fed members spoke and more are due throughout this week. It will be interesting to see how the market digests their narrative going forward. Tomorrow, we have local retail sales numbers. The previous reading came in at zero growth, and tomorrow it is expected to have grown by 0.4% – terrible numbers. On Tuesday night the U.S has some PMI data. On Thursday night the U.S has more PMI data, and to finish the week, the U.S has employment data Friday night.
US Markets
US shares closed mixed on Friday, with the DOW JONES closing slightly higher, while the SP500 and the NASDAQ each closed slightly lower. Data was fairly mixed, but importantly, it showed inflation coming in lower than expected in August, with less personal spending and income. US markets are now trying to weight up whether they will experience an economic downturn from here or not, and so far the data is inconclusive. The major event for this week will be US unemployment and payrolls data on Friday night and we could expect to see movement based on this event. Expectations are that more jobs will be created in September than in August, though if that isn’t the case, we could expect to see market selling.
Six of the eleven sector groups of the SP500 closed higher on Friday, with Energy the strongest performer, followed by Utilities. Technology stocks saw the most selling, most other sectors were flat.
Technically, the SP500 is trading in all-time high territory and its hard to say where it may stall. Last week the index was unable to close above 5,750, which could prove to be a resistance point in the short-term. Should the index fall from here, the previous all-time high around 5,670 should act as support.
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