The XJO is expected to edge higher on open this morning following a rally in the U.S overnight which saw their market crawl back roughly half of Friday’s intense selling. Their futures are flat.
Yesterday we sold down to the 50 day MA which comes in at roughly 8,880. We bounced from it intraday, rallying back up to sit near our opening price at just above 8,900. U.S futures were starkly in the green, and for most the session things looked positive. However, as the close drew near, our market sold back down to the lows, and settled on the 50 day MA – a point of comfort for us recently.
8,880 is also a strong level of support that had previously represented the top of the channel we had traded in through practically all of September. Coupled with the 50 day MA, it is not surprising to see our market hang around here as it waits to see how things unfold in the U.S.
The Friday to Monday move was a classic Trump flip flop that either exemplifies incompetence at best, or displays unchecked manipulation at worst (or perhaps vice versa). It is hard to suggest whether this recent sabre rattling will spark another dose of volatility, or simply evaporate in a news cycle that can’t seem to keep up with the current administration.
For now, we should assume 8,880 will hold, that the U.S will continue back towards their all-time highs, and that our market will ultimately follow.
We have the RBA minutes from their last meeting today. It seems likely to be a non-event. Powell will speak tonight, though again, it seems likely to be a non-event. Though perhaps with the consolidation we have seen recently we will be looking harder for future guidance from the central bank leaders.
US Markets
US shares rebounded strongly overnight, recovering a fair degree of Friday’s strong selling. US shares dropped on Friday after Trump announced he would increase the tariffs on Chinese exports to the US. It comes after China tightened export restrictions on rare earth minerals. Over the weekend though, Trump softened the threat by saying that Chinese President Xi had a bad moment and that the US wants to help China. Investors’ concerns were additionally eased after U.S. Treasury Secretary Scott Bessent said on Monday that Trump is on track to meet Chinese leader Xi Jinping in late October as the two sides try to de-escalate trade tensions. One has to wonder if either statement (adding the tariffs on China, or walking things back in the tweet) was done with the intention of influencing financial markets.
Nine of the eleven sector groups of the SP500 closed higher overnight, with Technology, Discretionary, and Communications seeing the most buying. Staples stocks saw the most selling.
Technically, the SP500 broke below its trend lines with the strong move lower on Friday. Despite the break of the trend line, the index remains on an uptrend and will remain so until it starts setting some lower peaks and troughs. The index does look very overbought, which perhaps exacerbated Friday’s breakout. With the breakout on Friday we would expect a move to the support level of 6,500, which was a previous level of resistance, and which may now act as support. This is also where the 50-day moving average sits, which may also act as support. Assuming these levels hold, we would anticipate a bounce back to the all-time high resistance level of roughly 6,750.