The XJO is expected to open lower after moderate selling in US markets overnight. Our futures are pointing to around 35 points lower, at roughly 8,135. In general, Australian shares have been weak recently as government bond yields have risen, with investors slowing their expected pace of rate cuts moving forwards.
Our XJO has returned roughly to key support levels around 8,120, which was a lower for our market in late September and early October, and a peak before that. Should this level hold, we could expect a bounce back towards 8,200, and also a potential short-term downtrend line that has formed since the all-time high. Whether or not we do bounce will depend on US market movements, and the key event for them will be tomorrow’s election; the results will likely be known during our session.
Since reaching all-time highs mid-October, our market looks to be potentially forming a downtrend. We have formed a lower peak and trough, and likely to form another lower trough. Furthermore, we have broken the uptrend line that had been in play since the start of August. We could be witnessing a change in trend, but our market has returned to an equilibrium in the medium term and remains fundamentally driven. We still look to the US for guidance however and their recent selling has allowed our market to move lower. It is likely that the Australian market will follow the US market moves after their election.
US Markets
US shares closed mostly lower overnight, with each of the three major indices seeing moderate selling. US markets drifted lower ahead of the key presidential election, which could trigger further volatility, or could trigger a return to buying. Its hard to know what outcome markets want from here. The other thing to keep in mind for US markets has been a recent rise in bond yields which is dampening sentiment. Should bond yields keep rising, its hard to imagine shares also continuing to rise, as higher yields make shares effectively more expensive.
Four of the eleven sector groups of the SP500 closed higher overnight, which energy the strongest performer, followed by Real Estate stocks. Utilities, Communications, and Financials saw the most selling.
Late last week the SP500 broke below the 5,770 support level and has since fallen to the next support at roughly 5,700. Should the index bounce from here, it could rise to 5,770 as a potential resistance. Unless 5,770 breaks to the upside, we could be witnessing a lower peak, which could indicate further selling to come. Regardless, the next directional move will likely be decided by the election.