The XJO is expected to edge higher on open this morning at roughly 8,260. U.S futures are in the red.
The U.S finished firmly in the green on Friday night, but it seems our market had likely already priced in their expected gains, heralded by their futures during our session on Friday. Coupled with their negative futures this morning, it helps explain our muted open.
It has been an unashamed and unhinged rally from our market of late. We have had seven days of consecutive bullish movement, and despite our negative open, could easily see another today. We have outpaced the U.S, which has had their strongest rally in about 20 years. We are overbought in the short and immediate term, expressed by our market trading about 3.5% above our 50 day MA, and the stochastic trading at virtually the limit of the overbought area. We are even trading above our 100, and 200 day MAs.
Markets seemed to be huffed up once again on the prospect of interest rate cuts from both the Fed and the RBA. Our market still believes there is likely four to five cuts coming this year, despite the RBA maintaining a cautious stance. U.S GDP numbers came in negative for the last quarter, which means they are half-way to a recession. And even though this would typically mean more rate cuts, Powell has also expressed caution surrounding inflation inducing tariffs. Stagflation is no joke.
8,250 is a key level of support historically, and this morning it seems we are set to listen to it. Perhaps it is coincidence though, considering our market has not had a problem just trudging through key historic levels in the recent run higher. Regardless, 8,300 and 8,350 remain the next key levels.
It would be hard not to expect a pullback soon. Even just to have some healthy profit taking and mean reversion. The steepness of the rally is not sustainable, and so we should by the very least see some consolidation.
US Markets
US shares have enjoyed their longest rally since November 2004, over 20 years ago. On Friday they were buoyed by hopes that China and the US would start negotiating a resolution to the trade war. In addition, a report showed that more jobs were created in April that expected, staving off some recession fears. The movements have been incredible, especially when it is clear that the US economy is slowing, the tariffs will cause an economic downturn unless addressed, and should the second quarter of US economic growth be as bad as the first, the US will be in recession. Additionally, the company earnings season, which is currently ongoing, is showing more earnings misses than recent seasons, though a few strong reports from major tech names has helped sentiment. Its hard to predict what will happen from here, because it has been a rollercoaster market, with a unpredicatble US President, but we are likely to continue to see big movements in both directions.
All eleven sector groups of the SP500 closed higher on Friday, with Communications, Financials, Industrials, and Materials the best performers. Every sector saw notable gains.
Technically, the SP500 closed higher for the ninth straight session on Friday night. The index has now broken the downtrend line that has formed since February. This should indicate a move back to the peak of late March around 5,775, which is also where the 200-day moving average sits.
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