The XJO is expected to break key resistance at roughly 8,250 this morning. Our futures indicate an open near 8,300 at time of writing.
The U.S shed marginal intraday gains on Friday to finish flat, but their strong futures this morning is likely the reason for our bullish open. Over the weekend the U.S held trade talks in China. Despite murky details on the outcome, markets clearly relish any progress in trade talks between the world’s two largest economies.
Last week we tracked sideward, consolidating between roughly 8,250 and 8,150. We skirted along the convergence of the 100 and 200 day MAs, using them as key support alongside 8,150.
The break higher this morning renews the underlying uptrend we have been trading in since our lows at the start of April. The uptrend line that hard formed was too steep and unsustainable. Furthermore, short-term indicators like the stochastic were extremely overheated. The week of consolidation gave an opportunity for the trend to shallow out, and for the overheated indicators to normalise to some degree. However, they continue to remain overbought, and the gradient of the trend is still quite steep – showing just how hungry markets are for further gains.
The usual headwinds remain: Powell reaffirmed a stoic position on monetary policy last week, economies continue to move towards recession, and despite the trade talks over the weekend, it would be hard to suggest with any real conviction that Trump will reverse tariffs. It may be these underlying existential issues come to a head at some point, but for now we should assume markets will continue to trade in the direction of their underlying uptrend.
8,300 and 8,350 are key historic levels of resistance. Indeed, there is practically key levels of resistance every 50 points from here until we get back to our all-time high. However, our market has recently been willing to simply walk through key levels, and so it is hard to know where the next peak of period of consolidation will be.
CBA will release a quarterly update on Wednesday. It will be interesting to see how the market will justify their valuations. Being the biggest stock on our market, and the leader of our largest sector, it may throw a spanner in the works if a reality check pulls them lower. This could mean a slower trudge higher for our index as the Financials have done much of the heavy lifting for our market over the past while.
Key macro-economic data remains important, as it continues to shape market opinion on monetary policy. The big news this week is U.S CPI tomorrow night, with core CPI expected to increase from 0.1% to 0.3% for April. On Thursday we have local unemployment numbers. We are expected to remain at full employment at 4.1%. On Thursday night the U.S has Retail Sales numbers which are expected to dip to show no growth. They also have PPI numbers which, like CPI, is expected to also increase. Finally, on Thursday night we will also hear more from Powell, who will likely continue to add colour to the Fed’s comments from last week.
US Markets
US shares closed slightly lower on Friday, with pricing initially opening in the green before falling back into the red. On Friday the very first Chinese freight ship goods hit with Trump’s 145%-plus tariffs arrived at U.S. ports and with tariffs starting to be paid, that could have dampened sentiment. Over the weekend, US and Chinese trade officials met to discuss the trade war in Switzerland.
Seven of the eleven sector groups of the SP500 rose on Friday night, with Energy the best performers. Healthcare stocks saw the most selling. Most sectors were fairly flat on average.
Technically, the SP500 has now broken the downtrend line that has formed since February. This should indicate a move back to the peak of late March around 5,775 – 5,800, which is also where the 200-day moving average sits. However, should the index break below 5,500 without 5,775 being reached, that would be a very bearish sign.
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