The XJO is expected to open lower once again following another volatile night in the U.S which saw their market shed their intraday gains to finish marginally in the red.
We saw falls across the board yesterday, with our market falling over two percent at one point. We managed to claw back from our lows, returning inside the short-term Bollinger Bands. 8,100 is key support, and it looks like our market reacted to it intraday. Despite the relatively flat close in the U.S overnight, our market is no mood to be courageous, and this morning we should test it again as we open about 50 points lower.
We should expect these levels to hold for now. U.S futures are in the green, which should help our market bounce intraday once again today. There is a broader underlying tentative uptrend line that comes in around these levels. We could bounce from it, but it is yet to be confirmed.
If we do crack lower however, the next key level is 8,000 as this is where the 200 day MA roughly comes in. Markets always return to meet there 200 day MA, it’s just a matter of when. Indeed, we may see it as part of this bearish move, but not before seeing some relief buying.
Ultimately, both our market and the U.S continue to trade in a longer-term uptrends, and we need to remember not much has changed. The U.S has shrugged off hawkish statements and less than favourable key macro-economic releases in the past in favour of the all-mighty pump. It could be that they were simply due for a pullback and Powell just gave them a reason. Furthermore, the past couple of days of falls from the U.S can’t be considered a change in trend. Their market has been in a strong “buy the dip” phase. Of course, with a spike in volatility and unease coming into markets, it’s impossible to know the short-term waves that will be made from the epicentre of the initial fall. But, it seems more likely than not this is a flash in the pan for now.
The only thing left to talk about his how warranted this pullback is for our market. The banks remain overvalued and expensive alongside our broader market. Even though we have been calling for a pullback to some semblance of sanity for a while now, we shouldn’t expect the market to suddenly sober up and trade back into some semblance of reality so easily and quickly. It is not surprising we have seen the falls. What will be surprising is if our market has changed sentiment on a dime.
US Markets
US shares closed flat overnight, with prices initially trading firmly higher, before pulling back and closing at yesterday’s finishing mark. US markets did look set to bounce overnight, but they were unable to, perhaps because economic data came in strong again for the US, which further suggests a lower likelihood of rate rises. Overnight data showed GDP growth was stronger than expected, and that jobless claims were lower than expected. US markets now have their mind set on interest rates and inflation, and there will be an important inflation update tonight. That will be the PCE price data (inflation) reading for November, should it come in lower than expected, markets are likely to jump. Should it come in higher than expected, we could see renewed volatility. Regardless, there is still plenty of liquidity for US markets and still expected earnings growth and ( for now), further rate cuts coming.
Four of the eleven sector groups of the SP500 closed higher overnight, with Utilities and Financials seeing the most strength. Real Estate, Energy, and Materials stocks saw the most selling.
Technically, following the FED meeting the SP500 broke below 6,000 and continued lower to the next support around 5,870, which was previously the all-time high resistance. The index held at this level overnight, but was unable to bounce from it. 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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