The XJO is expected to edge lower on open this morning despite a strong pullback in the U.S overnight. U.S futures are also mildly in the red.
Yesterday our market was modestly higher until were bolstered by weak employment data. The numbers came in worse than expected indicating a slowing economy. More importantly, the numbers defied the RBA’s recent hawkish rhetoric. The market has largely ignored what the RBA says and trades on its own beliefs, and in recent history, has largely been vindicated.
Yesterday was another example. With the poor employment figures, the market was happy to start pricing in an expedited rate cut, regardless of what the RBA’s current public-facing opinion is. We managed to push strongly into all-time highs, reaching roughly 9,100. We moved far outside the Bollinger bands, but normalised by the end of day, sitting just outside of it at 9,068 (and still in all-time highs).
This morning, we should open near 9,050. 9,000 to 9,050 roughly represented all-time high resistance, and a level we have flirted with a couple of times recently. Don’t be surprised if it now acts as support. This level gives our market an opportunity to profit take after yesterday’s spike in volatility and potentially form a base in which to rise from if things remain bullish.
For that, we would likely need to see the U.S at least hold ground, if not continue higher. Our market is remaining steady this morning, despite their selldown overnight. It seems for now, we are at least happy to see if they will follow us into fresh territory.
Otherwise, if the U.S does indeed selldown, which seems less likely for now, then 8,880 is the next key support and roughly where the 50 day MA comes in.
US Markets
US shares closed lower overnight, led by selling in financials stocks after two regional banks reported issues with loans, ratcheting higher concerns about systemic stress in credit markets. Still, there is some optimism around the likelihood of further FED cuts, with FED member Christopher Waller stating overnight “based on all the data we have … I believe that (the Fed) should reduce the policy rate another 25 basis points” at the conclusion of this month’s monetary policy meeting on October 29. US jobs data was expected to be reported last week, but given the government shutdown, the data was delayed until tonight. It remains uncertain though whether the data will be reported tonight. There remains plenty of risk to the downside for markets so it might pay to be cautious here.
Ten of the eleven sector groups of the SP500 closed lower overnight, with only Technology shares managing a (slight) gain. Every other sector closed lower, with Financials the worst performers, followed by Energy, and Utilities stocks.
Technically, its kinda hard to form a view on the SP500 at the moment. Despite a break of the uptrend LINE on Friday, the index remains on an uptrend and will remain so until it starts setting some lower peaks and troughs. The index does look very overbought, which perhaps exacerbated last Friday’s breakout. With the breakout on Friday we might see a move to the support level of 6,500, which was a previous level of resistance, and which may now act as support. This is also where the 50-day moving average sits, which may also act as support. Assuming these levels hold, we would anticipate a bounce back to the all-time high resistance level of roughly 6,750.
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