The XJO is expected to edge lower on open this morning following a flat close in the U.S overnight. U.S futures are in the green.
Yesterday we paused – a normal response to breaking into fresh all-time highs. We managed to hold ground, and this morning it seems like we will do so as well. The U.S looks like it is trying to recover from the swift selldown last Friday so perhaps our market seeing if it can.
Roughly 8,850 is now the resistance. How strong it is will be determined on whether we pullback properly from here or not. Roughly 8,750 is the next key level of support, which was our previous all-time high resistance.
Considering our market has just had a strong rally from 8,650, we should expect some mean reversion and healthy profit taking in the short term. However, short-term indicators don’t look that overbought. If we don’t see the pullback, it would be reasonable to at least expect some continued consolidation.
The big question will be the earnings season starting next week. The market will have a hard time justifying what is likely to be stretched valuations, however we have so far shrugged off bad news, focusing solely on the expectation of further cuts.
The RBA will announce a rate decision next week. They will almost certainly cut the cash rate, and so the market will be focused on any future guidance from Bullock. The market is expecting two more cuts this year, but some traders are expecting more. Bullock’s messaging could be quite sobering, but again, the market has largely shrugged off her hawkishness in the past. Indeed, it is hard to know what will stop the gains in this market for now, because all the usual reasons seem to have lost any authority or weight.
US Markets
US shares initially traded firmly higher overnight, before some weakening economic data caused some second thoughts. Overnight US jobless claims came in higher than expected, with continuing jobless claims at their highest level since the COVID pandemic period. While some interpreted this as a positive for the market, as it increases the likelihood of FED rate cuts, other suggested that the US economy is headed lower, while inflation still remains high (stagflation). US shares are also at risk of setting a lower peak if they see any more selling tonight or early next week, which could be a technical signal to watch for. For now though, US markets remain uptrending.
Six of the eleven sector groups of the SP500 closed higher overnight, with Utilities and Staples the best performers. Healthcare and Financials stocks saw the most selling.
Technically, the SP500 has recently bounced off support at 6,220 and has now headed back towards the all-time high resistance at 6,400. The index held below this level overnight, potentially suggesting a lower peak should it sell-down in the coming sessions. For now though, the index remains on an uptrend with higher peaks and troughs, so we must assume further upside from here.
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