The XJO is expected to open lower this morning, at just above 8,500.
Our Friday session looked much like our Thursday session where we tried our best to make fresh all-time highs, but by close, had given up most of the intraday gains to finish only marginally in the green. It seems that our optimism has been running out of gas, and buyer fatigue setting in.
Our lower open this morning is also at least in part due to how the U.S traded on Friday night. Their Thursday session showed promise of renewed vigour, giving our market hope that fresh highs were imminent. However, on Friday night they stalled at their all-time high resistance with very little movement. They couldn’t follow through, and our tired market will sell off in response this morning.
The lustre of local interest rate cuts is starting to lose its shine. It was largely responsible for the move higher that we have seen this year, but the news is starting to report uncertainty. Commentary about whether a cut will come, and even if it does, that it will be quite hawkish, is gaining momentum. Coupled with a rather average earnings season, expensive and over valued banks, questions around U.S monetary policy and Trumpenomics, a consolidating U.S market, it is not surprising to see our market pause here.
The previous all-time high resistance at 8,500 is now key support, which we are likely to test on open. Beyond that, 8,450 and 8,350 are the next major levels. Before our market can reach them though, it will need to contend with a strong uptrend line that has been in play since our December lows. It comes in at 8,450 today, but by the time we meet it, could be closer to 8,475 or 8,500.
Though buyer fatigue has set in, and there is plenty of good reason to sell down broadly, our market is technically bullish. The uptrend is clear. Today’s pullback is also some healthy mean reversion, returning to the middle of the Bollinger bands. The stochastic were also starting to head into the overbought area, so they too will normalise. We created another higher peak on Friday (albeit marginally). The new key resistance is likely 8,550, a level it seems we wanted to settle on the past couple of sessions. Our highs on Friday got to about 8,600, which is likely to be the next stopping point if our market does continue higher eventually.
The RBA rate cut is expected tomorrow, but the language will be closely monitored. It could be a “buy the rumour, sell the fact” scenario – it is hard to say. We also have local unemployment data on Thursday, but aside from that it is a fairly quiet macro-economic news week both locally and for the U.S.
US Markets
US shares were flat to lower on Friday, with minor selling across all three major indices. Prices stalled at resistance for US shares, with selling perhaps creeping in due to plenty of recent negative news, and uncertainty over the policies of the Trump administration. This week will be a fairly quiet one for US economic data, so the talk in the market will probably focus on Trump. US shares have had plenty of reasons to fall, but they remain near all-time highs with US government spending helping to keep them there. Regardless, they are still vulnerable to short shocks down, and don’t be surprised if we see something like that soon.
Technically, the SP500 has returned to the all-time high resistance level which sits just above 6,100. We will need to wait and see if this level holds or breaks. Should we see a break above this level, we should see further gains, though its hard to say where the target would be. To the downside, there is key support at roughly 6,000 points, which is also close to where the uptrend line comes in. This leaves the SP500 inside an ascending triangle, waiting for a directional breakout.
Four of the eleven sector groups of the SP500 closed higher on Friday, with Technology the best performer, followed by Communications. Healthcare and Staples stocks saw the most selling.
Want to continue reading?
This is only an excerpt from todays TradersCircle Members Morning Market Update and doesn’t include the key data and charts our traders are keeping an eye on every day. Become a member today for this plus full length mid-day and end of day updates, trade recommendations, trade group webcasts, and much more!