The XJO is expected to edge lower on open this morning following a small pullback in the U.S overnight.
Interestingly, we priced in their overnight move yesterday, following their negative futures during our session. Our muted open is likely our market having found a safe space trading at the convergence of the 100 and 200 day MAs. 8,150, roughly where they converge, is also a historic key level of support and resistance.
The pullback yesterday and our muted open look like they have broken the uptrend line. Not with a bang, but a whimper instead. This is giving some of our immediate indicators some room to mean revert. The stochastic have crossed and are level out – though still heavily in the overbought area. The immediate-term Bollinger bands have started to contract, and our market is starting to head back towards the mean.
How long this breather will last is hard to say. It is surprising that profit taking hasn’t come in with gusto considering the strong run we have seen, so perhaps consolidation is likely.
US Markets
US shares pulled back overnight to end the strong run of gains of the past fortnight. US shares had enjoyed their longest uninterupted rally since November 2004, over 20 years ago. Prices had a whippy back-and-forth session, with an eventual finish close to the lows of the session. Sentiment was a bit more negative overnight after Trump announced that he was not ready to speak with Chinese President Xi Jinping. Additionally, Trump announced fresh tariffs on imported film and visual media. US data overnight was mixed, though it isn’t deteriorating rapidly, which is giving some confidence to the market. Regardless, we do expect the US economy to head to recession unless they can strike a bunch trade deals – particularly with China. On Thursday night the next Federal Reserve meeting will be held and though no rate change is expected here, investors will be looking for any signs that the tariffs will delay rate cuts, or any sign that the FED expects a deterioration in the economy.
Ten of the eleven sector groups of the SP500 closed lower overnight, with only Staples shares managing a small gain on average. Every other sector closed lower, with Energy the worst performer after OPEC increased its production, while Discretionary, Technology, and Financials also fared poorly.
Technically, despite the overnight pullback, the SP500 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.
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