The XJO is expected to open practically flat this morning despite the U.S closing lower overnight. Our muted open is likely for two reasons. One, we did not continue higher yesterday as they did Friday night. And two, our market instead sold down yesterday, following red U.S futures which heralded their selldown last night. In essence, their fall last night is already largely priced. Furthermore, their pullback was fairly lacklustre and not indicative of continued selling just yet. Of course, if U.S futures once again selldown during our session today, we should see a repeat of yesterday. At this stage however, U.S futures are flat.
Regardless, it looks like they are running out of steam near all-time highs. They have a December rate cut to look forward to, but beyond that it is hard to tell. Unless key macroeconomic data between now and then continues to weaken, and therefore point to further cuts, it would be hard to expect them to continue tracking higher. And, without the U.S dragging the XJO, it seems reasonable to suggest the next move for our market is bearish or sidewards.
Our market is also contending with a clear downtrend line which we rebounded off yesterday. We have also all but confirmed another lower peak, and our short-term stochastic look like they are closing near the overbought area. These signs point to a lower market, but it wouldn’t be surprising to see indecision underpin both our index’s and the U.S’s movements in the short-term, and ultimately translate to a spat of sidewards movement first.
The 200 day MA comes in at 8,500 and represents the next clear target in the short-term. Although not a positive position for our market to be in, it is a point of equilibrium from a longer-term perspective. Beyond that, 8,450 to 8,400 represent the recent lows. Considering the downtrend, it wouldn’t be surprising to see us there again soon.
US Markets
US shares fell overnight, with reasonable selling across the three major indices. Shares opened lower but they tried to rebound intra-day. This rebound ultimately failed and prices finished back around where they started the sessions. Global markets saw selling overnight with worries around the US-Japan currency carry trade, with US rates expected to go lower, while Japanese rates are expected to go higher. Traders are pricing in an 87.6% chance for a 0.25 percentage point FED rate cut in December, roughly doubling the odds from late last month. Overnight, US economic data showed the economy is contracting more quickly than expected, which further increases the odds for rate cuts. Tonight will see a speech from Fed Chair Jerome Powell and that will also impact the likelihood of rate cuts. Still, should US markets not rise here, the current peak would be below the all-time high, which woul be a negative sign for the overall movement in the market. Obviously if the market can rise to a new all-time high here, that would be a positive sign.
Three of the eleven sector groups of the SP500 closed higher overnight, with Energy the only sector seeing notable gains. Most sectors closed lower to some degree, with Utilities, Industrials, Healthcare and Real Estate stocks the worst performers.
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 overnight move, though bearish, wasn’t quite a bearish candlestick as the close was not below the open. 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.
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