The XJO is expected edge higher on open this morning despite a decent pullback in the U.S overnight. U.S futures are flat.
In fairness, our market had already led the U.S by selling down on Friday. Yesterday we managed to rebound from key support intraday to retake the session’s losses and finish flat. U.S selling overnight was largely across the board, with the financials leading the selloff. We should see this translate into our market, especially considering how overbought our banks are. For our market to remain flat in the face of selling in our largest sector, the financials, our second largest sector, the miners, will likely need to pick of the slack. This tracks, as our miners are both relatively good value here in comparison to the broader index, and they have lagged behind a rally in iron ore recently by a good margin.
The U.S retreated to a soft support, and they could face another night of selling, albeit marginally, to reach key support of their previous all-time high resistance. This would both be a mean reversion for their overbought market (in the short-term) and perhaps show caution leading into their CPI reading Wednesday night (AEST). This would not necessarily translate to further selling in our market, but could lead to sidewards movement, which seems more likely at this stage.
We have felt for the past week or so that markets were due for a pullback. If any kind of Santa rally where to come, then markets would likely do so from a lower base. Either that, or after a couple of weeks of consolidation.
Our accelerated uptrend line that has been in play since our lows at the start of November has certainly shallowed out. It may still be in play, but the gradient is less steep with the recent sell down. We should continue to expect our market to track sideward to higher until we start seeing a shift in narrative and/or lower peaks and troughs.
We have an RBA cash rate announcement today at 2:30 (AEST). They will almost certainly keep rates on hold, but as usual, our market will be looking at the future guidance and statement. Past statements for much of this calendar year have been a copy-paste of a “wait and see” narrative. Don’t be surprised if it is much the same today and for our market to largely ignore it.
US Markets
US shares closed lower overnight, with each of the three major indices finishing in the red. US shares drifted lower with some profit taking after recent strong gains. There was a lack of major news and events for US markets, but that will change on Wednesday night, with CPI (inflation) for November. While US economic data has been strong for the past year, inflation has been sticky, should this inflation data come in strong, it could disrupt the likelihood of a third consecutive rate cut at next week’s final Federal Reserve (FED) meeting for the year.
Nine of the eleven sector groups of the SP500 closed lower overnight. Financials saw the most selling, followed by Communications and Utilities. No sector saw notable buying.
Techically, the SP500 may have found some resistance at 6,100 on Friday and overnight showed a bearish candlestick. This could indicate a move back to the previous all-time high resistance at 6,000, which may now act as support. However, for much of this year, bearish signals for US markets haven’t always eventuated in selling, so it is certainly not guaranteed. Should the index rebound and rise through 6,100, that could indicate further upside.
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