The XJO is expected to open flat this morning despite a strong rally in the U.S overnight which saw them accelerate into fresh all-time highs once again. Their futures have cooled off and are sitting flat for now.
It seems the U.S is salivating over the prospect of further rate cuts which were entrenched late last week by the lower-than-expected CPI reading. Our market on the other hand seems reluctant to price in their gains. We rallied yesterday, flirted with all-time high resistance at 9,100, then rebounded intraday. We gave up roughly half of the session’s gains to finish roughly where we opening – just above 9,050.
9,050 to 9,000 is a key level for our market. It was our previous all-time high resistance, and has proven to be a key support recently. Furthermore, the median of the Bollinger bands comes in roughly around these levels, representing a normality for volatility in the short-term. Whilst the U.S continues to move higher, dragging us with it (albeit reluctantly), we seem to be holding the median and the 9,050 level – a point of comfort for now.
Our market’s reluctance to continue moving higher may be for a few reasons. One, we simply may be cynical the U.S is able to hold these gains following the Fed meeting tomorrow night. They are expected to receive a rate cut, which as usual is priced in, and so markets will be looking for continued dovish tones from Powell. Which highlights another reason – the U.S is overbought in the short-term, and in a prime position for swift profit taking. The Fed meeting could be the catalyst. Thirdly, the reasons we sold down and consolidated through September remain. And finally, we simply may not be as entrenched in our belief that a rate cut is coming around the corner locally. We had poor unemployment figures the other day, but we likely don’t want to get too ahead of ourselves before the CPI reading tomorrow (11:30am AEST). If the CPI reading comes in favourable for further cuts, our market shouldn’t have a problem pushing into fresh territory. The prospect of rate cuts will make us turn a blind eye to practically any intrinsic or existential issues facing our market at the moment.
In essence, we are trading near the top of the range, there is plenty of key data this week, and the U.S is well overbought in the short-term. However, trends remain bullish, and until we see otherwise, we should expect the trend to continue and for our market to eventually make fresh highs. It should be approached with caution however, as the reporting this week should translate to a spike in volatility.
Be sure to check your positions on open this morning. Some of our best profits happen within the first twenty minutes of trading.
US Markets
US shares continued higher overnight, rallying further after Friday’s gains. US markets jumped on Friday, with US inflation coming in slightly lower than expected, opening the door for a rate cut from the Federal Reserve at their meeting on tomorrow night. While an October cut had largely been expected by the market, bets on another cut in December are now starting to rapidly increase. Sentiment was also boosted overnight with Trump set to meet Chinese President Xi Jinping in South Korea on Thursday; President Trump stated last night that he expected the US and China to “come away” with a trade deal. Likely they won’t sign an actual trade deal, more likely a minor agreement that Trump will herald as a deal. Regardless, sentiment in US markets is extremely positive at the moment, though their markets are starting to look overbought in the short-term.
Nine of the eleven sector groups of the SP500 closed higher overnight, with Communciations, Technology, and Discretionary the strongest performers. Staples and Materials stocks closed a little lower.
Technically, the SP500 broke through the previous all-time high resistance on Friday, which sits at roughly 6,750. The index has continued higher since then and overnight closed above 6,800. The index remains on an uptrend, and with the recent break higher we should see further gains. It is now hard to say where the buying might stall, but look for round numbers as potential sticking points – including possibly 6,900. To the downside, the most recent trough aronud 6,650 is likely to act as support. The stochastic is also indicating further gains for US shares, though it is in the overbought area.
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