The XJO is expected to open lower this morning following renewed aggressive selling in the U.S overnight. Their futures are flat, at least giving no indication of expected continued falls.
Their falls were largely tech driven, though other sectors suffered too. Materials fell .69% but the Financials actually managed to rally, finishing .57% in the green. Considering our market is not well represented in tech, and that our two major sectors were mixed overnight, it helps explain why our market is having a relatively muted response to such a large pullback.
We should open testing 8,200, which roughly represents the lows of the recent consolidation range. It would be reasonable to expect a break today, given how strongly the U.S fell overnight.
For a moment there it looked like a relief rally was on the books, but now it seems we will reach the broader target of roughly 8,100 to 8,050 first. We have advised recently that this rough level is the next broader target for our market because not only does it represent the lows for our market in general, but it is also where the 200 day MA comes in. Markets and the 200 day MA always meet again eventually. It is just hard to know when. Considering how close we are, and with fear starting to underpin market selling, it makes sense our market returns there soon. We may overshoot it, or we may stop just short. Either way it is the most logical target especially now that our market looks set to break lower this morning.
US Markets
US shares fell strongly overnight, with each of the three major indices seeing notable selling. The selling came with NVIDIA closing strongly lower, despite reporting fairly upbeat results. Perhaps the high valuation is starting to worry some investors. Also worrying investors was further tariff talk from Trump, who said tariffs would be imposed on Mexico and Canada next week, as planned, along with a further 10 per cent tariff on Chinese goods. Investors are increasingly viewing Trump as a major threat to share markets. The implementation of tariffs, the cuts to welfare for poor Americans, the cuts in taxes for the rich, the destruction of the Western alliance, the cuts to US government workers, and many other questionable policies are working to destroy confidence. Inflation is also increasing, with US 4Q24 PCE prices coming in hotter than expected overinght, while jobless claims are also rising. Tonight we will see the January PCE (inflation) report, and the market will likely move strongly on the back of it.
Four of the eleven sector groups of the SP500 closed higher overnight, with Financials the best performers, followed by Energy stocks. Technology stocks saw the most selling, followed by Utilities and Communications.
Technically, the SP500 overnight broke below its longer-term uptrend line overnight, which formed since the rebound in October 2023. The index saw an immediate move back towards possible support around 5,850 index points. This support level could sit as low as 5,800 however (January’s lows). Should the index break below 5,800, we would expect a fall to the 200-day moving average at 5,750. Should the index rise off the current levels, a rebound to 6,000 should be on the cards.
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