The XJO is expected to open higher this morning following a strong night of buying in the U.S overnight. Their futures are also in the green.
Yesterday our market once again showed how resilient we are in the face of U.S adversity. Typically, our market would be more than willing to price in U.S losses, but reluctant to price in their gains. However at the moment it seems we are living in bizzarro world, where the opposite is true. We did not price in the most recent sell down in the U.S, instead choosing to track sideward and even slightly higher. And, with a solid move higher overnight, our market is expected to open higher near 8,000.
Our expected open will also put us at the 50 day MA, a point of short-term equilibrium. By that metric, our market will be neither overbought nor oversold by short-term standards – an extraordinary feat all things considered.
It seems reasonable to suggest that a good portion of our strength is coming from overseas investors. There seems to be a flight of capital from the U.S and into other markets. This is not only evident in the atypical discord between our market and the U.S, but also the greenback. The USD index has continued to fall, when typically, we would expect it to rise in when U.S stock markets sell down. We have seen strength in our dollar against the greenback for example. This could indicate that capital is moving away from the U.S and their new tariff king, and moving into other markets including ours.
8,000 represents a key resistance, not only because of the 50-day MA, but also because it is the previous peak before the tariff announcements. It would be hard to expect the rally to continue from here, but we are living in strange times. CBA rallied aggressively yesterday, leaving the other banks behind, but it is now trading at all-time high resistance. For our market to continue to rally from here, it would be reasonable to suggest that CBA would need to make fresh highs – which is possible, but seems improbable in any good measure.
US Markets
US shares jump strongly overnight after Trump officials stated again that they wanted to make a deal with China on trade, and that the final trade tariff would undoubtedly be a lot lower than the 145% tariff. Additionally, Trump came out and said that he wouldn’t fire Jerome Powell, after markets sold off on Monday on comments that Trump was looking to fire Powell. It is clear that the Trump administration is unhappy with how negatively markets have moved and that they are trying to force prices higher by backtracking and saying what investors want to hear. That has worked to some degree for the US market, and we could see them rise back to their downtrend lines, which sits around 5,450 on the SP500. From a more longer-term perspective, enough damage may already have been done to trigger a recession, and earnings forecasts are steadily in decline. It might be hard for US shares to have much further upside given this is the case.
All eleven sector groups of the SP500 jumped strongly overnight, with Financials the best performers, followed by Discretionary, Communications, and Utilities. Every sector saw notable gains.
Technically, the SP500 reversed Monday’s bearish candlestick. Overall the index has fallenback off before it has reached the downtrend line and it is possible that we see an acceleration on the downtrend from here. From a wider perspective, the index is inside a descending triangle between the downtrend line at approximately 5,500 and the support level at approximately 5,000.
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