The XJO is expected to open lower this morning – somewhere near 8,725 at time of writing.
On Friday our market had a massive rally as it smashed into all-time highs. It felt like it was built on very little, to the point that one of the best explanations seems to be a compounding short squeeze. Of course, the promise of further rate cuts is always an underlying factor in our bullish moves. However, not much has changed since the RBA unexpectedly held cuts last meeting, except for a slightly weaker employment figure last week.
Our move on Friday was a bit out of control, so it is not surprising to us opening lower this morning. We were outside of the short-term Bollinger bands, expressing that the volatility would need to normalise today. Furthermore, the U.S followed our session on Friday with its own break higher, however their move was far weaker than ours, and they ended up giving up their gains intraday to finish practically flat. Finally, our market seems typically unwilling to make fresh consecutive highs with conviction. Instead, it will often pullback intraday, the next day, or within a handful of days of consolidation. It seems this time is no different.
The break higher on Friday also means our market broke the short-term ascending triangle in the direction of the underlying uptrend. No surprises there. The resistance that formed the triangle, which also represented our previous all-time highs, comes in at roughly 8,630. This level is now the next key level of support.
Considering our expected pullback this morning, tentative resistance is now roughly 8,660 – though we would want to see it tested further before putting too much weight on it. The pullback this morning could easily be a simple mean reversion, and resistance may fail easily in the coming days if bullish momentum persists.
However, despite the rally, it would be hard to suggest that our market will continue to push higher from here in the short-term. Unless the U.S is reinvigorated, it seems more realistic to expect either some healthy profit-taking, or sidewards movement and consolidation.
The week ahead has a few key U.S company earnings reports and some key macro-economic releases. Tomorrow, we have the minutes from the latest RBA meeting. Considering they unexpectedly held cuts last meeting, the market will want to see very dovish tones to validate their hope of an August cut – and preferably more before the year is out.
Powell will speak tomorrow night. U.S monetary policy has been less clear and more troublesome compared to ours of late. Their inflation numbers have slowly ticked up over the past few months. Powell is expressing concerns, and Trump keeps threatening to fire him and announce his successor. Trump can’t legally remove him, but the law hasn’t seemed to stop him thus far. The market has largely ignored Trump’s posturing, but interestingly, it has also largely ignored Powell’s hawkish tones. To finish the week, the U.S has PMI and New Home Sales on Thursday night.
US Markets
US shares closed lower on Friday, with prices initially trading higher before pulling back and closing in the red. Prices ran out of steam with rising bond yields, with investors worried about the likelihood of further interest rate cuts. This week is a fairly quiet one for US economic data, and the week will instead be all about company reporting, with the world’s largest companies reporting results this week. We will also see a speech from Fed Chair Powell on Tuesday night. Regardless, US shares remain in quite a bullish slant and this will likely remain the case until something disrupts the narrative.
Five of the eleven sector groups of the SP500 closed lower on Friday, with Utilities, and Discretionary the best performers. Energy and Healthcare stocks saw the most selling.
Technically, the SP500 despite strength last week, the SP500 has failed to break above the all-time high resistance at 6,300. 6,300 would have to break for further gains to look likely. The previous resistance at 6,150 which may now act as support.
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