The XJO is expected to open lower this morning following a pullback in the U.S overnight. Their futures are flat.
Yesterday we managed to claw back intraday losses to once again finish marginally in the red. The U.S has been maintaining its highs, but over the past couple of sessions has shown buyer fatigue. Furthermore, U.S CPI is due in the early hours of tomorrow morning, and the some of the shine on Trumps election has faded. For these reasons our market has cynically been reluctant to price in their extended gains, we have edged lower in the expectation of an imminent U.S pullback. We were vindicated last night.
Depending on how CPI goes could determine the trading of the market over the next few days. The U.S, despite their pullback overnight, is still trading above their most recent previous all-time high resistance – which is now their best target for support. In essence, there is still room for further profit taking, and our market will have no problem pricing in the falls.
Indeed, even though we have already fallen over the past couple of sessions despite the U.S maintaining their highs, we are expected to open at roughly 8,150 – a decent measure lower. Gravity is weighing us down, and for the most part, the U.S has kept us elevated. If they sell off, then we should see our recent lows at 8,100 pretty comfortably.
Finally, we should hang around the 50 day MA today – a point of short-term comfort for our market. By this metric, the market is neither overbought nor oversold, as the index will be trading at the average price it has traded at over the past 50 sessions. The pullback today will also normalise shorter-term indicators like our stochastic and our Bollinger bands. In essence, we shouldn’t worry too much about our market’s inability to keep up with the U.S, and willingness to price in their gains. In fact, one might argue that it is more sensible.
US Markets
US shares closed lower overnight, with modest selling across each of the three major indices. It seems that profit taking crept into shares after the incredible recent strength. Shares fell with bond yields continuing to grind higher as investors start to fret about whether we will indeed see all the expected Fed rate cuts this cycle. Indeed, the big event this week will be tonight’s US CPI (inflation) data for October. Inflation is expected to come in roughly in-line with September’s numbers, which does present a little bit of risk. Should inflation not continue to fall here, it raises questions as to whether the ‘Fed’ will continue to cut interest rates. Regardless, some profit taking is healthy for the US market, which is extremely expensive at current level and until we see a strong bit of fundamental news to disrupt the current momentum, prices are likely to remain elevated.
Only three of the eleven sector groups of the SP500 closed higher overnight, with Communications the strongest performer. Materials saw the most selling, followed by Healthcare, Real Estate, and Utilities stocks.
Techically, the SP500 showed a bearish candlestick overnight and may have found some resistance around the 6,000 point level. Should the index keep falling in the coming sessions, it could fall back to the previous all-time high at roughly 5,880, which may act as support. Should the index rise through 6,000, that would indicate further gains.
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