The XJO is expected extend yesterday’s relief rally with an expected open near 8,550 at time of writing. This following a continued move higher in the U.S overnight which also showed their market extending their bounce from key support on Friday night. Though it is promising to see the bounce and recovery, their futures are flat this morning, giving no indication as to whether the rally will continue at this stage.
Part of what helped our market maintain strength yesterday was positive U.S futures during our session. They moved strongly into the green, heralding their move last night. Today, unless U.S futures move once again firmly into the green, it seems reasonable to suggest given the recent uncertainty, that most of the gains will happen on open or in the early morning session. Our market likely won’t need much of an excuse to finish flat or in the red today. Any bullish positions under strict management should be closely monitored on open this morning and considered for action.
Yesterday’s move broke the accelerated downtrend line. The gradient was too steep to maintain. 8,550 is the next key level of resistance which we rebounded from intraday yesterday. We should test it again on open this morning – another good reason to expect most of the gains to happen on open. Beyond that, there is practically historic resistance every 50 points. The next clear target to the upside however seems likely to be the downtrend line which comes in at roughly 8,650 at this stage. Given the gradient though, by Friday it will come in at 8,600 – so if our market consolidates and whipsaws, they will come to meet each other eventually.
Finally, looking at key indicators, the 200 day MA comes in around 8,500. It seems likely we continue to trade near it. We may move above or below it by 50 to 100 points or so, but we should expect it to act as a sort of magnet in the short-term. The median of the short-term Bollinger bands comes in around 8,550, and we should meet it this morning. This represents a form of mean reversion for short-term volatility. It is quite normal to see a market return to the median before bouncing off it and continuing the trend (which in this case is bearish). Another good reason to believe the selling could come again soon. The stochastic will also somewhat normalise on open this morning, but of course still be trading near the oversold area.
In essence, though our market has seen some respite recently, it would be hard to expect further gains from here. Renewed bearish movement, or by the very least sidewards movement, seems likely on the books for now. Of course, if the U.S decides to continue higher, or a key piece of macroeconomic data (like our CPI numbers tomorrow) give credence to an expedited rate cut, then our market may change attitude.
US Markets
US shares closed higher overnight, with each of the three major indices finishing firmly in green. It was technology that led the buying, with a resumption in gains for the sector after recently struggling. A 7 percent jump in Tesla and a 5 percent jump in Alphabet helped the technology space to push higher. Additionally, the odds for a rate cut from the Federal Reserve at their December meeting have now increased to 80 percent, from below 50 percent just over a week ago. It now looks fairly likely that US markets will rise into that meeting, which will take place on the 9-10th of December. However, should a rate cut be delivered at that meeting, don’t be surprised to see selling after the event. It is worth noting that economic data could support or disrupt this view, and there will be plenty of important data tonight, including retail sales, producer prices, and industrial production.
Nine of the eleven sector groups of the SP500 closed higher overnight, with Communications, Technology, and Discretionary the best performers. Staples stocks saw the most selling, followed by Energy stocks.
Technically, the SP500 has risen after bouncing from the key level of 6,550 on Friday. The index has now rallied to the 50-day moving average at roughly 6,710, which is also where you can draw a short-term downtrend line to, and there is also a key resistance level around 6,750. We would need to see a close above these levels before the index will look like taking a run at the all-time high. The stochastic is also turning to point higher from the oversold range, which could also indicate a bit of a turn about to come here. Should the index fall off from here and break below 6,550, we are likely to see a technical correction.
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