The XJO is expected to open marginally higher this morning. It will likely be enough, however, to open above the key resistance at roughly 8,450. This level represents both our all-time high and the top of the ascending triangle that we have been trading for the past few weeks.
We have tried to break through the resistance twice now (last Monday and Thursday), but we were unable to commit and pulled back inside the triangle intraday. This morning, we will have another crack. The U.S committed to their break into fresh all-time highs on Friday, holding most of the gains into the close. Our market may feel compelled to follow suit.
Last week was a whole mess of indecision. We potted around at the top of the range, faked a couple of break outs, reversed intraday losses and ultimately went nowhere. The short-term accelerated uptrend line expresses our market’s bullishness, but the resistance shows that we have been unwilling to truly commit whilst the U.S was tracking sideward.
By short-term indicators, our market doesn’t look too overbought. Nor does the U.S. Our stochastic are flirting in the overbought area, and we are a healthy enough distance away from the 50 day MA. We are also not riding the top band of the Bollingers. These metrics create comfortable room for a continued move higher.
The discord arises when taking a step back and look at both our market as a whole, and in conjunction with the broader economy. Our retail sales numbers remain poor, alongside our stagnant GDP. However, we remain at full employment with ironically no wage growth. Inflation remains steady, pushing cost of living higher. Alongside stagnant wages, it puts pressure on middle to lower income earners (the majority of Australia it should be noted). Inflation is high enough that the projection on local rate cuts has practically been pushed out to 2026. Stagflation is a very real possibility.
Our market is the most expensive it has ever been. Our banks are the most expensive they have ever been. They have largely been the driving force behind our index’s rallies. It would be completely reasonable to argue that our market is a bubble, and that our valuations are stretched beyond reason. When it will pop is hard to know, as we are simply following the U.S.
Regardless, the market is trading quite technically, especially on the bullish sides Be careful trading against the trend, and it would make sense to keep a “buy the dip” mentality for now. Of course, one day it will end in tears, but that could be a long while off, and virtually impossible to predict.
If our market can commit to the break today, then expect 8,500 or 8,550 as the next key target as our market seems to like whole numbers for key levels of resistance and support.
In the week ahead, we have local retail sales today. It is expected to grow from 0.1% to 0.4% from September to October. Tonight, there is U.S PMI data. On Wednesday we have local GDP numbers, which are meant to grow from 0.2% to 0.5% (QoQ). On Wednesday night, the U.S has further PMI data, and Powell will speak. On Friday night the U.S will have employment data.
US Markets
US shares closed higher on Friday, with moderate buying across each of the three major indices. It was a shortened session on Friday, with only a half day’s trade due to the Thanksgiving public holiday. Still, markets reached fresh all-time highs despite lower volumes. November was the best month for US shares this year, and that includes a lot of great months. US shares seem to have unending bullish momentum, with plenty of government spending acting like fiscal stimulus, while the Federal Reserve is cutting rates, acting like monetary stimulus. We will get an update on the Federal Reserve from Jerome Powell later this week, but this will otherwise be a fairly quiet week for US shares.
Nine of the eleven sector groups of the SP500 closed higher on Friday night, with Discretionary and Technology stocks seeing the most buying. Most other sectors were fairly flat, while Real Estate and Utilities saw the most selling.
Techically, the SP500 pushed through the 6,000 point resistance level on Friday, though the movement was fairly small. The break higher does indicate further upwards movement, though its hard to say where the movement will head towards. The intra-day peak almost reached the 6,050 level before pulling back, so this could be the mark to watch in the short-term. To the downside, a break below 6,000 poins would be the move to look out for.
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