The XJO is expected to open lower this morning following a pullback in the U.S overnight. Their futures are flat.
Last night’s pullback isn’t surprising and was likely expected by our market. We have been reluctant to price in their gains, partially because they are overbought by short-term metrics. Their acceleration is not sustainable, and our market seems reluctant to rally into an inevitable mean reversion. We have been drifting higher – showing very little commitment and hanging around the 50 day MA.
Last night’s selldown only reversed the previous session’s gains, so it means largely nothing. If it were more indicative of an extended mean reversion, our market’s futures would likely be pointing harder into the red. For now, our expected open is 8,830 – roughly where we opened yesterday. Of course, by the time the market opens, we may tilt further.
8,800 and 8,750 remain the bottom of the channel. If selling persists, we should assume these levels will hold. The 50 Day MA is also acting as a magnet. Unless the U.S pulls back harder, we should continue to expect this trading range to hold for now.
We have weighted mean CPI today at 11:30am (AEST). In recent history, this reading has often caused our market to react. However, unless it reports outside the expected range, it seems likely to be a non-event.
US Markets
US shares closed lower overnight, with selling across each of the three major indices. The move can be seen as profit taking after a series of all-time high closes in the prior sessions. US shares may have also been weakened somewhat by a speech from Fed Chair Powell, who was more cautious on rate cuts than many were hoping. Powell stated “near-term risks to inflation are tilted to the upside and risks to employment to the downside – a challenging situation”. The next major event this week won’t occur until Friday, with a PCE inflation reading. Expect to see movement based on this reading, with lower inflation opening the door for further rate cuts (and market rises) and with higher inflation likely to trigger market selling.
Six of the eleven sector groups of the SP500 closed higher overnight, with Energy and Real Estate the best performers. Discretionary and Technology stocks saw the most selling.
Technically, the SP500 has stalled out at potential resistance around 6,700 index points. This comes after a series of all-time highs in the prior session. The index bounced off its uptrend line last week, and overall it remains in a short-term and longer-term uptrend, which was recently confirmed by the break above 6,500. However, after recently strong gains, we will need to watch carefully for where the next peak forms, which could be the overnight high of 6,700. The index remains in an overall uptrend with higher peaks and troughs, so even if the market stalls out here, we would expect a higher trough not too far away – perhaps at the previous resistance levels of 6,500. The stochastic is also at the top of the range, which suggests the move may be running out of steam.
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