The XJO is expected to edge higher on open this morning. The U.S closed marginally higher but also continues to track sidewards as they flirt with all-time highs. Their futures have also moved into the green.
Yesterday GDP came in a good measure worse than expected. Initially this provided a boost to our market in routine fashion, as weaker economic data has typically translated to further rate cuts and a bull market. However, a weakening economy whilst seeing rising inflation and practically full employment spells a far more nefarious situation – stagflation. Soon after the routine intraday rally, our market sold off into the close.
It’s hard to say if our market is still holding the downtrend line. Rather than break the pennant with any directional movement, we have simply tracked sidewards in a fairly tight range. From here we should still assume that the next directional movement will be down with the trend, but it is hard to suggest acting until we see more evidence. The U.S could easily break higher and drag us along with it, but with not much else to look forward to after the December rate cut (for now at least) it seems less likely.
8,650 remains clear resistance, and 8,550 remains key support. If we do break lower, then a move back to the 200 day MA which comes in at roughly 8,500 seems likely.
US Markets
US shares closed higher again overnight, with prices continuing to rise ahead of the expected rate cut of 25 basis points at the Fed meeting next week. Overnight, US economic data was again quite weak, including a report that showed jobs losses, which bolsters the likelihood of next week’s cut. Friday’s release of the PCE price data, the Fed’s preferred inflation gauge, could further solidify expectations for the rate decision next week, which would be positive for markets. However, should inflation come in strong, it could trigger a rapid repricing of rate cut odds, which could trigger a big drop. In general, we would expect positivity in the leadup to the FED meeting, but after the meeting things may be a bit more negative depending on whether more cuts are expected in 2026 – based on what the FED’s commentary is.
Nine of the eleven sector groups of the SP500 closed higher overnight, with Energy, Financials, and Industrials the best performers. Technology and Utilities were the only sectors to close lower on average.
Technically, the SP500 is stalling out around the previous peak at roughly 6,850 index points. This is slightly below the all-time high of 6,920. Should the index fall from here, it would be recording a lower peak than the all-time high, which is a somewhat negative signal. The index hasn’t shown a bearish candlestick when stalling at hthis level, so it doesn’t look bearish just yet. However, should they show a bearish candlestick tonight, that could indicate that we are about to see a period of selling. The stochastic is also potentially starting to turn and cross here, which could also confirm a downturn, though again, it is yet to point lower. A break above 6,850, would indicate a rise to the all-time high.
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