The XJO is expected to open lower this morning following a strong selldown in the U.S overnight.
Their Financials fell just over two percent, and considering how overbought CBA looks it would make sense if that was where most of the damaging is being done this morning.
We should open near 8,300, shedding all of yesterday’s gains and moving to the lows of Tuesday. 8,300 is a key level of support historically and has been used as the base of the recent consolidation. U.S futures are flat and if they remain so during our session, most of the selling should occur on open and our market should hold 8,300 today. However, if it does indeed break, then 8,250 is the next key support.
Over the past several months our market has been sort of unwilling to price in U.S losses, but more than willing to price in any of hint of gains. Typically, it has been the other way around. For now, though, this would mean that we should expect our market to be resilient.
Storm clouds have gathered on the horizon, and markets are fighting against headwinds. It seems the only thing keeping markets moving higher is the prospect of further rate cuts both locally and in the U.S. It’s worth noting that the higher creeping long end bond rates have started to make its way into mainstream publication. If it continues to get more attention it could be the catalyst for falls.
US Markets
US shares fell strongly overnight, with perhaps the uncertainty about the economic situation as well as the recent run higher bringing sellers into the market. Additionally, some of the largest US retailers reported weak earnings overnight, adding to the economic uncertainty. Some profit taking shouldn’t be too unexpected given the recent run higher. There was a lack of major data and events overnight, though there is a budget bill currently being negotiated by US lawmakers. The bill would provide $4.9trn USD in tax breaks and add to the ballooning US government debt. While the passing of the bill and tax breaks would likely be positive for the market in the short-term, it does add to the evergrowing US government debt problem and it is pushing US government debt yields higher. Currently it looks like some republicans will oppose the bill, so there is no guarantee that it passes.
Only one of the eleven sector groups of the SP500 closed higher overnight, which was Communications. Every other sector closed lower, with Real Estate, Healthcare, and Financials seeing the most selling.
Technically, the SP500 remains firmly in an uptrend. In the short-term they look primed to reach 6,000. Should that level break, the next upside target would be the roughly all-time high resistance around 6,150. Currently though, the gradient of the trend remains too steep to be sustainable, and immediate term indicators like the stochastic remain heavily overbought. Should we see a pullback, the first downside target is likely to be the previous resistance at roughly 5,800. US markets are only roughly three per cent away from their all-time highs, but it would hard to suggest they will get there soon. It perhaps seems more likely they will have some profit taking or consolidation before reaching it considering how tired they look.