The XJO is expected to open lower this morning at roughly 8,600 at time of writing. The U.S rebounded from key resistance near all-time highs overnight. Our response is rather meek, but considering the disconnect between our markets, it isn’t too surprising.
Our market currently sits just over five per cent away from our all-time highs, whilst the U.S remains within arm’s reach. If they do indeed selldown from here, provided it isn’t too excessive too quickly, our market may hold up relatively well. Of course, if selling comes in hard and fast, our market is unlikely to show much courage and resilience.
Both markets continue to track sideward in a tight range. Both the volatility indices for the SP500 and ASX, the VIX and XVI respectively, are trading below yearly, half-yearly, and quarterly averages. There was some normalisation in the U.S overnight with their pullback, but it seems likely only to be the beginning. A mean reversion of these indexes typically spells bearish movement, especially if it is quick and aggressive.
Soon financial tabloids and pundits will start talking about a “Christmas Rally” if they already aren’t. Though our market is in a good position for a rally from a technical standpoint, the U.S is already trading at the top of the range and failing at all-time highs. However, if we they do see a selldown, and a normalisation of volatility, then both markets will have a base in which to rally from.
Today we have the RBA interest rate decision at 2:30pm AEDT. They are almost certainly keeping the cash rate on hold at 3.60%. Our market will instead be looking for future guidance from Bullock. A large part of the reason we have disconnected from the U.S is they are likely to get a rate cut this Thursday morning (6:00am AEDT), and our market has no such thing to look forward too. Indeed, we are going through withdrawal symptoms and will be looking to Bullock for hope of another hit. Bullock could be dovish, and our market could enjoy a small rally. She could be hawkish, and our market may despair. She could keep her cards close to her chest (as usual) and the market may go either way. Regardless, the RBA today and the Fed meeting Thursday morning could be the very thing that shakes things up.
US Markets
US shares closed lower overnight, with selling across the three major indices. While they closed lower, it does come after a period of fairly consistent gains for US shares. Some selling shouldn’t be unexpected in US markets, with their prices at all-time highs, their valuations extreme, and the economy not looking great. Still, they are powered higher by US government spending and interest rate cuts and another interest rate cut is expected tomorrow night. This interest rate cut has been a bullish driver for US shares and it has allowed them to return towards their all-time highs. However, there is a chance that this is the last cut, or at least that not many cuts remain this tightening cycle. As a result, it is possible that the market reacts negatively after the cut happens. There isn’t much other data this week so it will be all about the FED meeting and the reaction to the rate cut and the accompanying statements.
Technology was the only sector of the SP500 to close higher overnight, with all ten other sectors finishing lower. Communications, Materials, and Discretionary stocks saw the most selling.
Technically, the SP500 is seemingly stalling out just below the all-time high resistance. Overnight the index showed something of a bearish signal, which would indicate a move back towards 6,750, which is also roughly where the 50-day moving average sits. The stochastic is also looking quite overbought, which also suggests we could see some profit taking. However, it is worth noting that the index remains in an overall uptrend, and until we see some lower peaks and troughs, we have to assume the upwards momentum will eventually prevail.
Want to continue reading?
This is only an excerpt from todays TradersCircle Members Morning Market Update and doesn’t include the key data and charts our traders are keeping an eye on every day. Become a member today for this plus full length mid-day and end of day updates, trade recommendations, trade group webcasts, and much more!