The XJO is expected to open mildly higher this morning, near 8,950 at time of writing. This follows a fairly indecisive, yet volatile session in the U.S Friday night, which saw their market finish practically flat. Their market at least bounced from the key support, indicating they are willing to continue trading in the channel they have been in for the past couple of months. Their futures have dipped into the red this morning, and with their market closed tonight, will be our main source of leads.
On Friday our market pulled back spectacularly, after rebounding from our all-time high resistance intraday the previous session. We shed practically the previous two sessions’ worth of gains, finishing on 8,900 support. It was not surprising to see our market profit take and mean revert following such a strong bull run last week. It also isn’t surprising to see us bounce this morning. The nature of our market lately has been volatile, with large whipsaw movements that make directional trading harder.
The Financials last week certainly played a big part in our rally, as investors piled into CBA following their mild earnings reports. CBA is considered stable, pays a good dividend, and unlikely to face new competition entering the marketplace due to high barriers of entry. In times of uncertainty, it is not surprising to CBA remain popular, as it did for much of the past two years. The other banks followed, of course, and the sector as a whole helped drive our market. Our Materials also kept the party going, with many key stocks like BHP, RIO, NST, and EVN rallying from their small pullback the previous week. When coupled with a strong Financial sector, our market could only skyrocket. However, the rally was unsustainable, and after reaching all-time high resistance, it made sense investors took that as a signal to profit take and cool.
From here is hard to suggest. There are plenty of good reasons for our market to fall. Our Materials for example, should face pressure from our strong dollar, and some of our key miners like FMG, RIO, and BHP face further pressure from tanking Iron Ore prices. Furthermore, considering our market kissed all-time highs on Thursday, we have practically caught up to the U.S. However, unlike their market which is expecting another rate cut “soon”, our market could be instead facing further rate rises. It arguably has not even priced in the recent rise.
On the other hand, our market seems set on following their U.S for the most part. Our stability this morning is likely led by the U.S holding their key support and indicating they are happy to continue in the channel. Had they broken lower, we would likely have been met with another day of selling today. If they can hold strength then so should we. Furthermore, our economy remains practically at full employment. Debt is high, liquidity is high, and there are plenty of Australians paying into Super, of which a portion gets allocated into local markets. It seems like the party could easily keep going for now, even if it doesn’t make a great deal of sense.
Macroeconomic data remains ever important, as it continues to shape the narrative around monetary policy, and of course the broader economy. Aside from the U.S being closed tonight, China will be closed for the week to usher in the new year.
Tomorrow, we have the minutes from our last RBA meeting. This release could easily affect our market as it will perhaps give our market a clearer understanding as to what the RBA is expecting going forward. The last meeting was pivotal as it could signal a transition from expansionary monetary policy (which played a huge part in our past two years of gains), to contractionary monetary policy. We will also get the Fed minutes from their last meeting Wednesday night, and again, could be pivotal as it may give markets a better understanding for how close or far the next cut is.
On Thursday, we have local employment data, which is expected to ease slightly. To finish the week, the U.S has PCE and PMI data Friday night, but any reaction will be baked into our open next Monday.
US Markets
US shares closed flat on Friday, with prices holding up after a report showed inflation coming in lower than expected. Prices were firmly in the green at points, but ended the session fairly flat. Overall the inflation data was seen as support hopes for interest rate cuts. Still, AI and other tech stocks weren’t able to gain, and their recent selling over valuation concerns continues to hold the market back. This week will be fairly quiet for economic data until later in the week, and US markets are closed tonight for a public holiday. Therefore don’t be surprised if there is little in the way of US news to report.
Seven of the eleven sector groups of the SP500 closed higher on Friday, with Utilities, Real Estate, and Materials the best performers. Communications and Technology stocks saw the most selling.
Technically, the SP500 held the support level at 6,800 on Friday, with the index now potentially forming a channel between this support and the all-time high at 7,000. With Friday’s inflation news, one might expect a run back to the all-time high at 7,000. However, we are yet to recieve the bullish entry signal suggesting this. The stochastic is also pointing down still, though it will likely turn higher should we get that bullish entry bar. However, should the index break below 6,800, we should see a period of selling.
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