The XJO is expected to open lower this morning despite the U.S continuing their rally on Friday. U.S futures are flat.
On Friday we managed to join in the U.S rally with firm commitment. At one point we were outside of the short-term Bollinger bands with the spike in volatility, but we pulled back slightly intraday to finish just inside them. We also seemed to stall at key resistance at 8,300 – an inflection point we hung around with last time we journeyed to all-time highs.
However, despite the U.S maintaining their strength Friday night, our market is expected to open near the 8,250 key support. This would largely erase Friday’s gains. Our weakness may be due to a few factors. Firstly, the rally on Friday in the U.S was only partially made of the financials, and their materials actually fell by more than their financials gained. Secondly, our market may be finding it harder to ignore both the local economic situation, and what the Trump presidency may mean for us with his rhetoric on trade protectionism. Finally, it may simply be that our market is once again returning to its cynical nature, where it doesn’t believe the U.S will continue in the short-term, and therefore doesn’t want to continue pricing in their gains.
We need to remember that we are still broadly trading in a medium and longer-term uptrend. The short-term downtrend played out, which we broke leading into the election last week. This doesn’t mean we should assume that we will make leaps and bounds though. It is clear that the U.S is pulling us higher, but our market is clearly reluctant. We have issues at home as we head towards some semblance of stagflation, and Trump’s election puts a giant question mark around trade. In essence, though we may broadly expect the market to trend higher, we do so with caution and the expectation of sidewards movement.
US Markets
US markets saw moderate gains again on Friday, with prices continuing to push higher after the Trump election and the Fed rate cut. The pace of gains definitely slowed in the Friday session, and indeed, most European and Asian futures markets pushed lower. Still, optimism clearly remains in US markets after the Trump election, with expectations of lower corporate taxes. It is likely that profit taking will hit at some point this week, after a ridiculous run over the past few sessions, but things are likely to continue higher until new information changes the narrative. This could come in the form of economic data, with the next major data point coming on Wednesday night, with US CPI for October – which is expected to show inflation in line with the level of September. Should inflation rise at all, that could trigger some revised thought as to the likelihood of rate cuts moving forwards.
Eight of the eleven sector groups of the SP500 closed higher on Friday, with Utilities, Staples, Discretionary and Real Estate the strongest performers. Materials stocks saw the most selling.
Overnight the SP500 again closed at a fresh all-time high. It broke through the previous peak at 5,870 after Trump’s election and is continuing higher. Its hard to say what will happen from here, as things are mostly moving on fundamentals, but things technically look further bullish.
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