The XJO is expected to open lower this morning following a marginal pullback in the U.S overnight. U.S futures are also flat.
We have been highlighting for a while now that though we seem to be tracking alongside the U.S (for the most part), we are doing so with higher volatility. Yesterday we rallied straight back to key resistance at roughly 8,350 resistance off the back of a marginal rise in the U.S Friday night. This morning, we are set to give it all up on open. We should move back towards our Friday lows at roughly 8,275 which also roughly represents the bottom of the recent consolidation range. The U.S wasn’t even that bearish, managing to retake intraday losses to finish only 0.18% lower overnight. In essence, we are consolidating at the top of the range, like the U.S, but doing so with larger swings.
This could be due to our two largest sectors undergoing some osmosis of capital from one to the other whilst they figure out what is going on. China announced some stimulus late Friday which helped push our materials higher yesterday, but the sector has largely sold off over the past couple of weeks following their massive bull run. The financials on the other hand (led by the big four banks) have seen a stella run once again since their pullback, managing to crack through into all-time highs yesterday. No doubt these banks are expensive, and it would be easy to argue that they are overvalued at these levels. However, our market needs to buy something up if we are to keep pace with the U.S, and if the materials aren’t playing ball our market turns to the banks. (Their backs must be getting sore.)
Technically, we continue to assume bullish to sideward. We are consolidating at the top of the range, but there is a clear uptrend line in play which we are grinding along. If this uptrend line were to break, don’t assume the market will have turned, but instead that the gradient is shallowing out. Of course, it will depend on how the uptrend line breaks, but trying to pick the top of this market has been proven to be difficult.
US Markets
US shares closed lower overnight, with selling across each of the three major indices. There was no major news or events overnight, and instead investors decided to take profits with prices at all-time high levels. This will be a pretty quiet week for economic data, so the focus will likely be around company earnings, with the earnings reports restarting tonight. Still, there seems little in the way of scheduled events to shake markets this week, so instead we could see things grind sideways to perhaps slightly higher from here.
Ten of the eleven sector groups of the SP500 closed lower overnight, with only technology shares closing higher on average. Real Estate, Healthcare, and Financials stocks saw the most selling. Most sectors closed lower to some degree.
Technically, the SP500 set fresh all-time highs last week indicating further upwards movement, though its hard to say where that movement may rise to though it did struggle to push through 5,870, which may now be acting as resistance to the upside. Should the index fall from here, the previous all-time high at 5,770 is now likely to act as support to the downside, though there is also a potential trend line which intersects at around 5,800, that the index may have bounced off overnight.
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