The XJO is expected to edge higher on open this morning following a renewed rallied in the U.S overnight which saw their market close into fresh all-time highs.
Yesterday our market pulled back after making our own fresh highs the previous session. We dipped back under the key support at roughly 8,450 in the morning, but by the afternoon we had reversed. We clearly rebounded off both the key support and the accelerated uptrend line that has been in play since roughly the start of November. We closed back above the key support, and this morning our reversal should continue.
The next key resistance is at 8,500 which also now represents our all-time highs. Our market seems to like 50 point increments, so 8,550 is likely the next target beyond that. It looks like we will get there too, with all the right technical signs both locally and overseas. Furthermore, our market is flirting with overbought territory, but not enough to expect profit taking to be around the corner in any meaningful measure.
Looking further ahead however, we wouldn’t expect December to continue this rally without some profit taking or a heavy dose of sidewards movement. This would also set up a possible Christmas rally, but that cyclical has been an unreliable on for years now.
Finally, GDP came in yesterday worse than expected. YoY we fell, but QoQ we managed some marginal growth but not as much as what was expected. This is another step towards stagflation, where we see no growth, but inflation remaining high. We are not sure that the market knows what to do with this information. It is clearly bad, but perhaps it will help point to rate cuts eventually? The market largely ignored it, which makes sense because there is no good reason for our market to be trading at these levels. We are simply following the U.S.
There may be opportunity in the iron ore miners. They are lagging behind a recent rally in the Iron Ore space. It would not be surprising to see a rotation of capital from the overheated major banks into some of key miners.
US Markets
US shares closed higher again overnight, with each of the three major indices finishing in the green. US shares were again driven higher by technology shares, with around half of the sectors finishing in the red. Comments from Fed Chair Jerome Powell overnght were seen as somewhat hawkish, but not enough to challange the market’s assumption of a December rate cut. Overnight US economic data was mostly worse than expected, with a bad jobs reading and weaker factory orders and services growth. The next major event for US markets will come on Friday night, with the November unemployment report. For now, US shares continue to be extremely bullish with huge government spending and expected rate cuts. However, they look to be in a somewhat vulnerable position, with inflation remaining sticky and with other economic data weakening.
Five of the eleven sector groups of the SP500 closed higher overnight, with Technology the strongest performer, followed by Discretionary shares. Energy stocks saw the most selling, followed by Materials stocks.
Techically, the SP500 pushed through the 6,000 point resistance level on Friday, indicating further upwards movement. Strength in technology stocks continues to push the market into further highs. Its hard to say where this move may end, but on a pullback, the previous resistance at 6,000 points is likely to act as support.
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