The XJO is expected to edge higher on open this morning, at roughly 7,675.
On Friday, our market managed to retake intraday losses to finish only marginally in the red. Our strength was, at least in part, likely due to positive U.S futures during our session. The U.S fulfilled what their futures heralded, closing firmly in the green on Friday night. Considering we had already priced in their move, it helps explain our muted open this morning.
Our market on Friday looks it may have bounced intraday from a small countertrend line. Coupled with the downtrend line our market likely rebounded from intraday on Thursday, our market looks like it is trading in a pennant pattern.
Typically, we would expect the underlying downtrend to win, and for the countertrend to break. However, even though are market has clearly fallen from our all-time highs back in mid-Feb, it is not a clearly defined downtrend with clearly defined consecutive lower peaks and troughs. This puts a bit of a question mark on the validity of the downtrend, and therefore it would be harder to assume the countertrend will break.
This question mark makes sense when considering the backdrop of what has been going on and driving the falls. Yes, Trump’s tariffs are likely devastating for global economics, so the falls are warranted. However, whether they will stick, or whether he would pause or cancel them, has created whipsaw movement. It is quite clear how quickly these markets can be bought up with even just the rumour of a pause. Powell originally said that tariff induced inflation would be transitory. Then he came out and said the Fed was far more worried. In essence, it is not clear we are actually in a bear market, and it would be wiser to defer judgement until we see further evidence.
Key levels for our market outside of the trend lines, are 7,650, 7,750, and 7,850. The downtrend line also comes in at 7,850, and the countertrend line also comes in at roughly 7,650. Even though volatility continues to cool, it seems likely the pennant break this week. Though it is a four-day week, and with Easter holidays, we may find we do very little.
Macro-economic news remains key for markets that try to digest the tariffs against the broader economy. However, the tariffs have certainly been in the limelight over the past week or so, dominating the news cycle and market movements. Now that things have cooled on that front (for now), markets will likely refocus on key macro data, especially because recession fears have made its way into mainstream media.
Tomorrow, we have the minutes from the last RBA meeting. This may be consequential as our market believes there could be up to five cuts this year and will be looking for confirmation from the minutes. On Wednesday night, the U.S has Retail Sales numbers, and Powell will speak. On Thursday, we have local Unemployment numbers, which is expected to increase marginally, but keep us at practically full employment. Friday is a public holiday in many nations that observe Easter, and so is Monday next week. The four-day weekend might give an opportunity to trade a time decay strategy like a condor, but it would make sense to price something up on Wednesday rather than late Thursday when the market makers start pricing in the holidays.
US Markets
US shares rebounded on Friday, with prices rising across the three major indices. US investors remain uncertain over the outcome of the Trump tariffs, with Trump starting to unwind these tariffs after backlash from investors. US markets (particularly the bond market) were close to breaking before Trump paused his reciprocal tariffs. After US markets closed on Friday, Trump announced that many tech products, including NVIDIA chips and Apple iPhones, iPads, Macs, Apple Watches and AirTags would be exempt for the US tariffs on China and Taiwan. This is the Trump government once again picking winners and backing the wealthiest and most powerful. This is despite high-technology manufacturing returning to the US could have been one of the only positive outcomes of the tariffs. Trump trade officials did clarify overnight that this would be a temporary rather than permanent exemption, which is seemingly a response to the backlash the exemption caused. Don’t be surprised to see markets rise a little here, with seemingly ‘positive’ news in the short-term. However, the plenty of economic damage is being done, and don’t be surprised to see selling resume shortly, perhaps at the downtrend line for the SP500.
All eleven sector groups of the SP500 closed higher on Friday, with Materials, Technology, Industrials, and Energy the best performers. Every sector saw notable buying.
Technically, the SP500 has found some potential support around 5,000 and now looks like it might pushe back up to the downtrend line, which currently sits around 5,580. This leaves the index inside a big descending triangle, and we will need to wait for a break of the triangle for further moves to look likely.
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