The XJO is expected to edge higher on open this morning despite a small pullback in the U.S overnight. Their futures are flat.
Yesterday we gave up practically all our intraday gains into fresh highs to finish flat. It seems our market is weighing up whether further moves into fresh highs is warranted, and without strong leads from the U.S, we are stalling. It is common to see our market consolidate after making fresh highs, which is then usually followed by a selldown. However, we are in an unusual market where we seem to have blinders on, focusing solely on the prospect of further rate cuts. As the likelihood of a July cut becomes entrenched, so does the prospect of our market continuing higher. Whether the U.S can keep up doesn’t seem to matter at this stage. Indeed, they remain a per cent or so from their own all-time highs. If they do however come online, it will only serve as further fuel for our market.
Regardless, markets look tired. The writing is on the wall. It just comes down to how forward looking the market wants to be. In the short-term, rate cuts are keeping things elevated. But looking beyond that, economies are slowing and we are heading towards what could easily turn out to be a recession. Global economic forecasts are being downgraded, and GDP numbers are stagnant.
Resistance seems to be somewhere around 8,600 – a level we have not committed to breaking. 8,550 to 8,500 remains key support, which is also roughly where our uptrend line comes in. Yesterday it seems we bounced off the top of the ascending channel intraday, so we have further evidence this pattern is holding for now. We should continue to expect it do so, but considering how tired markets look, don’t be surprised to see a break lower soon.
US Markets
US shares closed lower overnight despite CPI (inflation) data for May coming in slightly lower than expected. However, the number is still holding up well above the Federal Reserve’s target range, so rate cuts won’t be expected in the short-term. In London, Chinese and US trade officials apparently agreed to a framework for a trade deal (according to US officials) though this would not change the tariff rates from their current settings. As part of the deal framework, he said that magnets and “any necessary rare earths” will be supplied up front by China and the U.S. will allow Chinese students to attend U.S. colleges and universities. US shares look very expensive, especially when you consider the current tariffs and the reciprocal tariffs that were delayed until July. The US economy has held up ok, but it is definitely showing signs of slowing, with company earnings growth being downgraded. Don’t be surprised to see profit taking soon, though it may start after US markets reach the all-time high.
Four of the eleven sector groups of the SP500 closed higher overnight, with Energy the strongest performer. Discretionary and Materials stocks saw the most selling. Every otehr sector was fairly flat.
Technically, the SP500 has pushed through two resistance levels at roughly 5,975 and 6,000. With these levels breaking, from a technical perspective, further gains to look likely. The next major level to the upside is the all-time high at roughly 6,120. Should the index break its uptrend line, that is where we could see more selling.
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