The XJO is expected to open lower following renewed selling in the U.S overnight. Their futures have now edged into the green.
Well, it seems the selling wasn’t finished. Once again, our market is set to break the base we had started to form and create fresh lows. Last time we consolidated along 8,150, which we broke below a few days ago. We stalled at 8,100 and it looked like for a moment there we would be holding around these levels and the 200 day MA. However, our expected open so far is down near 8,000.
Our market has not traded below 8,050 since moving above it in September last year. We have tested it on several different occasions, and each time it has proven to be the absolute bottom for our market. By the time the market opens, it wouldn’t be surprising to see us back above it, but equally, considering the current sentiment, it wouldn’t be surprising to see our market simply give up.
The selling over the past couple of weeks seems to finally have eroded any resistance from the bulls. Their meagre attempts have produced a few green days dotted amongst the sea of red, but it has mounted to practically nothing – no mean reversion, no relief rally, no countertrend movement. Of course, the bulls will eventually return. Eventually we will see mean reversion. Eventually we will see a relief rally. But when is hard to know.
Our index has fallen almost seven per cent, accounting for this morning’s open. Ten per cent is typically considered a correction, which can actually strengthen underlying up trends– but perhaps those days of that type of market analysis don’t apply anymore in this brave new world. The reality is that there doesn’t seem to be much to be hopeful for as March could easily remain bearish as markets wait and see whether Trump’s tariffs will go into effect early next month.
And taking a step back, if the removal of tariffs is the only thing markets can be hopeful for, then it paints a pretty grim picture of the future.
US Markets
US shares resumed selling overnight with strong falls across each of the three major indices. The selling came as tariffs remained in place against Canada and Mexico, though after US markets closed there was an agreement to further delay tariffs against Mexico. Markets are also expecting additional tariffs against other trading partners of the second of April. Should these tariffs remain in place for any length of time, we are likely to see a strong economic downturn and a bigger market sell-off. Already, forecasts for US GDP growth are turning negative, with the Federal Reserve of Atlanta now forecasting a contraction of 2.4 percent for the first quarter, a massive drop. While markets are likely to rebound on news of a deal being made to stave off tariffs, these rebounds are unlikely to be very large in the face of strong market selling.
Ten of the eleven sector groups of the SP500 closed lower overnight, with only Energy finishing (slightly) in the green. Every other sector closed lower, with Discretionary, Real Estate, and Technology the worst performers.
Technically, the SP500 is continuing to fall and now looks likely to head back to the lows of October and November, around 5,680-5,700 index points, which aren’t too far away from the overnight low. Other key levels to watch would be a technical correction (10% fall from the peak), which would come in around 5,540. Should the market rebound, the previous support at 5,850 is likely to act as resistance.
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