The XJO is expected to open higher this morning following a strong rebound in the U.S overnight, which saw their market reverse practically all the previous session’s losses. Their futures are flat.
Our expected open is near 8,125. Part of our mute open is due to almost 25 points of dividends coming out of our index this morning. Remember, a stock must fall by its dividend amount, and there are enough dividends today to make our market pullback 25 points. The fact we are due to open higher despite the 25 point suppression, reflects the strength in the move overnight in the U.S.
Yesterday we fell to 8,100. This was expected, as was our market flirting with the 200 day MA. Markets always return to their 200 day MA eventually, and it made sense we did so considering both the current environment and the fact we haven’t been close to it in almost six months. We held below it for much of yesterday’s session, but thanks to U.S futures remaining firmly in the green, we managed to have a late intraday rally to finish near 8,150 resistance. The late rally also shows a clear rebound off 8,100 key support.
Our market continues to hold the short-term downtrend line, which we may test again today. The steepness of the downtrend line is unsustainable and seems likely to break soon. It is hard to know where the bottom of this market is, but 8,050 to 8,100 seems likely.
We should expect a relief rally soon. Despite the negativity, don’t underestimate the U.S’s ability to buy-the-dip and pump. If there is a whiff of a positive swing in trade talks, their market shouldn’t have too much of a problem pushing higher – which of course seems likely to at least partially flow into ours.
Trump makes markets very hard to predict. It feels we are more reactionary this time around, but perhaps the time passed since his las appointment has dulled our perceptions. Regardless, markets are whipsawing on each mention of tariffs – Trump’s favorite word, he states. However, like last time, markets will likely be slowly inoculated to the venom and eventually stop reacting with such volatility.
Looking further ahead, it seems quite clear now that we are heading towards global recession. It will likely be exacerbated if America continues down the path of isolationism. As the hegemony, if they decide to make grand changes (and we are only a month in…) it can have a cascading effect that touches all points of the globe. This may seem hyperbolic, but the writing is on the wall.
For now, we trade what we see. It is an oversold market in the immediate term, due for a relief rally, but we would likely want to see the downtrend line break before committing. On the flip side, it is hard to suggest a bearish trade as we are trading near the bottom of the range, and have practically reached our downside targets. Ultimately, we are expecting a sideward market, trading in a broad range. We would want further proof of this first before committing, however.
US Markets
US shares rebounded overnight, with reasonably strong buying across the three major indices. This came after President Trump said he would pause tariffs on the auto sector integrated between Canada, the US and Mexico for one month, though the remainder of tariffs are to remain in place. This is likely because the current production chains for north-american made vehicles sees them crossing borders multiple times. The vast majority of Canada, Mexico, and China tariffs remain in place, as do the retaliatory tariffs from these countries. Additionally, tariffs against every other trading partner are expected on the 2nd of April. Should these tariffs remain in place for any length of time, we are likely to see a strong economic downturn and a big market sell-off. In many ways, it seems like Trump is playing chicken with other economies, yet instead of facing the consequences of one trade war, the US is putting itself at a disadvantage by facing many at once. It should be worth noting that any deal, cancellation, or pause to the tariffs is likely to be met with a rebound.
Nine of the eleven sector groups of the SP500 closed higher overnight, with Materials the best performers, followed by Discretionary, and Industrials. Most sectors saw reasonable buying, except for Energy and Utilities, which saw notable selling.
Technically, the SP500 recently broke below the support around 5,850 index points, which it held as resistance overnight. The index now looks like continuing to fall to the lows of October and November, around 5,680-5,700 index points.
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