The XJO is expected to edge lower on open this morning following another small pullback in the U.S overnight. Their futures are in the green.
Yesterday our market sold down, finishing firmly in the red. This wasn’t too surprising. We had three bullish days in a row, practically rebounded off the top of the consolidation range at roughly 8,880, and the U.S had sold off the night prior. However, the selling was certainly exacerbated by stronger than expected weighted mean CPI data. It was already expected to increase from last month, from 2.8% to 2.9%, however it came in at 3%.
Ratte cuts, or the promise thereof, has been the largest driver for our market over the past couple of years. Indeed, interest rates has largely been the biggest catalyst for our market over the past several years. Our market wants to see softening inflation, so the RBA can justify further cuts. The CPI reading yesterday was not well received.
We returned to the bottom of the trading range at roughly 8,750. It was good to see our market bounce intraday and track higher into the close. It shows we are still willing to hold this range for now. This morning, we will test it again, with an expected open near 8,740.
However, if the U.S continues to sell off from here, considering we are already trading at the bottom of the range, our market could easily give up and break lower. The U.S does indeed look toppy, and the past two sessions are indicating a turn around. Of course, they could easily rally from here too or track sidewards and consolidate. They have GDP data tonight which could be the decider.
US Markets
US shares closed slightly lower again overnight, with minor selling across each of the three major indices. There wasn’t too much to remark on in the way of news or events, and instead the move can be seen as profit taking after a series of all-time high closes in recent sessions. Following the recent gains, US shares “are now trading at the highest forward valuation we’ve seen since the depths of the pandemic and that valuation, which is far above historical norms, reflects a lot of future good news already priced into stocks,” according to a US market commentator. In this environment, profit taking periods shouldn’t be unexpected. The next major event for US shares this week will occur on Friday, with a PCE inflation reading. Expect to see movement based on this reading, with lower inflation opening the door for further rate cuts (and market rises) and with higher inflation likely to trigger market selling.
Four of the eleven sector groups of the SP500 closed higher overnight, with Energy and Utilities the strongest performers. Materials and Real Estate stocks saw the most selling.
Technically, the SP500 has stalled out at potential resistance around 6,700 index points. This comes after a series of all-time highs in the recent session. The index bounced off its uptrend line last week, and overall it remains in a short-term and longer-term uptrend, which was recently confirmed by the break above 6,500. However, after recently strong gains, we will need to watch carefully for where the next peak forms, which could be Tuesday’s high of 6,700. The index remains in an overall uptrend with higher peaks and troughs, so even if the market stalls out here, we would expect a higher trough not too far away – perhaps at the overnight low of 6,600, or if that breaks, the previous resistance levels of 6,500. The stochastic is also at the top of the range, which suggests the move may be running out of steam.
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