The XJO is expected to edge lower on open this morning. The U.S finished in the green, but only after selling off from their intraday highs. Their futures are flat.
Yesterday we had our sixth day of bullish movement in a row, closing firmly on the convergence of the 100 and 200 day MA. Our market insisted on reaching this level, outpacing the U.S in dramatic fashion to do so. Now that we have reached it, especially considering how overbought we look in the short-term, it would make sense to see a selldown, or by the very least some consolidation. The steepness of this uptrend line cannot be sustained and must break soon. The stochastic are as overbought as they have ever been, and we continue to grind along the top of the Bollinger bands. All in all, mean reversion is overdue.
It’s also not as if the news has been positive. China is stalwart, refusing to negotiate or remove tariffs – the Trump is Trumpeting a different message. Local CPI came in stronger than expected across the board. The U.S has one foot in recession following their negative GDP reading, and their consumer confidence numbers reflect the GFC. Their recent strength is likely due to the belief that they will get more rate cuts as they move closer to recession. However, that’s a hard circle to square when the Fed is also concerned about inflation inducing tariffs. It is important to also remember that even if the tariffs are mild, many major companies could easily echo the price gouging they wrought on consumers during covid when they hid behind “inflation and supply chain issues”.
8,150 is also a key level of resistance historically. We may overshoot it if the U.S continues to move higher, however it would be hard to expect too much more.
US Markets
US shares closed higher again overnight despite recently negative news. The latest of which was a stronger than expected increase in jobless numbers overnight. It comes after a US GDP reading in the prior sessio showed their economy contracted in the first quarter. US markets were buoyed however, by strong earnings reports from Microsoft and Facebook, with both stocks rising strongly overnight. Regardless, it looks like there is to a reasonable likelihood of US recession, as early as the middle of the year. And this should be negative for the market. We will see the full US unemployment report tonight, with forecasts suggesting fewer jobs created in April than in March. After US markets closed, Apple and Amazon both reported better than expected earnings (as US companies always do) but their share prices were trading lower after market due to weak forwards guidance and Apple’s poor performance in China. Overall US markets look very overdone in the short-term, so don’t be surprised to see some profit taking soon.
Seven of the eleven sector groups of the SP500 closed higher overnight, with Technology and Communications the best performers. Healthcare stocks saw strong selling. Most sectors were fairly flat.
Technically, the SP500 closed higher for the eigth straight session overnight. The index has now broken the downtrend line that has formed since February. This should indicate a move back to the peak of late March around 5,775, which is also where the 200-day moving average sits.