The XJO is expected to edge lower on open this morning despite a meek rise in the U.S on Friday night. Their futures are flat.
We finished firmly in the red on Friday. We couldn’t find any obvious reason for the extent of our move. The U.S pulled back in the previous session, but our market took it a good measure further. Indeed, the U.S has held their underlying uptrend and continued higher, but our market broke the accelerated uptrend line on Friday and is expected to continue the move lower this morning.
Ultimately, we believe it is likely that our market has been trading in an elevated position for too long and that buying fatigue had truly set in before the pullback on Friday. There is no good reason for our market to be trading at these levels, other than the fact we simply want to follow the U.S. Friday’s pullback was likely healthy profit taking and mean reversion.
Despite our recent selldown, our market is likely to rebound soon considering the strength in the U.S. The U.S also looks tired, but their market could easily continue to sleep-walk higher. Furthermore, our short-term indicators have somewhat normalised. We should open near 8,400 key support. Don’t be surprised if we rebound from 8,400 intraday to finish either only marginally in the red, or even in the green.
We have some key news in the week ahead that will likely bring back some volatility to markets. Tomorrow, we have an RBA interest rate decision. They will almost certainly keep rates on hold for now, and their messaging is likely to be a copy-paste from their previous statements given throughout this year – that of monitoring and waiting. We shouldn’t expect this to move our market which has largely ignored our own material reality for a while now.
The big news, however, is U.S CPI on Wednesday night. The U.S is still slated to receive another rate cut this month, and CPI could easily confirm or reduce that likelihood. Their unemployment came in as expected on Friday, likely helping their market keep trending higher. For their market to rise, they likely need to keep seeing data that is neither strong nor weak. Either way, the U.S could use it to trigger some overdue selling.
US Markets
US shares closed mostly higher on Friday, with the SP500 and NASDAQ closing higher, while the DOW JONES finishes lower. US shares rose with a goldilocks read from their unemployment report – which showed that the jobs market is still going strong, but not strong enough to stand in the way of further interest rate cuts. The big event this week for US markets will be the November CPI (inflation) report, which will come out on Wednesday night Australian time. This reading will likely determine whether the Federal Reserve delivers another rate cut next week, or whether they pause things for now. US markets keep powering higher on a belief that more rate cuts are coming (as well as continued fiscal stimulus and hopes that AI will increase earnings), so this reading has the potential to disrupt the current bullish narrative.
Only four of the eleven sector groups of the SP500 finished higher on Friday, with Discretionary and Communications rising strongly. Energy and Utilities stocks saw the most selling.
Techically, the SP500 is continuing higher after recently breaking above the 6,000 point resistance level. The pace of gains has definitely slowed for US markets, but not enough to suggest a pullback just yet. Its hard to say where this upwards move may end, but on a pullback, the previous resistance at 6,000 points is likely to act as support.
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