The XJO is expected to fall significantly this morning following strong falls across the U.S overnight. Their market clearly didn’t like the future guidance on monetary policy from Powell.
Their market fell roughly three per cent overnight, and closed just below the 50 day MA. Our market had already fallen three per cent, but rebounded to sit practically on our 50 day MA. This morning we are expected to open just below 8,200, which will put us just over three per cent down from our all-time highs. In essence, both our market and the U.S are in a similar position – it’s just their market did it in one movement.
However, unless the U.S rebounds, we should expect our market to continue to fall. If we hold below 8,200, then 8,150 and 8,100 are the next key levels. Roughly 8,100 represents the lows and last major trough.
If we do enter bear market territory, then 8,000 is the next key target as this is where the 200 day MA comes in. It’s been a long time since our market has met the 200 day MA.
Don’t forget that the U.S has had a strong “buy the dip” mentality. The trend clearly also remains positive. Their move last night only wiped out about month of mild gains, returning them back to their all-time highs just before election night. With their market returning to the 50 day MA, it wouldn’t be surprising for this to be a flash in the pan, and by extension, for our market to hold roughly around these levels.
US Markets
US shares tanked overnight after the Federal Reserve cut interest rates. The selling came after the Fed members indicated that there would likely be a pause after this cut due to risks to the upside on inflation. Commentators have called it a ‘hawkish cut’ and the Fed is predicting less rate cuts next year than many investors were hoping for. The selling was definitely magnified by the strength and high level of the market. It is hard to say if the events overnight will trigger continued selling, as there is still plenty of liquidity for markets and still expected earnings growth and rate cuts coming. However, it is likely that investors will be a lot more cautious to the upside now than they have been for all of 2024. The major event now will be the US PCE (inflation) reading on Friday night – will it come in strong (as it has done for months) and trigger renewed selling? or will it restore calm and allow markets to chill?
All eleven sectors of the SP500 closed strongly lower overnight with Discretionary, Real Estate, Communications, Financials and Technology stocks the worst performers.
Technically the SP500 broke below 6,000 and continued lower to the next support around 5,870, which was previously the all-time high resistance. Should the index break below this level, the next downside target would be 5,770. Should the index bounce off this potential support level, we could see a move back towards 6,000.
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