The XJO is expected to open higher this morning despite a small pullback in the U.S overnight. Their futures have moved into the red.
Yesterday we finished in the green, but most of the rally happened on open. The RBA cut rates by 25 basis points as expected, and the RBA tone was quite dovish compared to previous statements. Our initial response was fairly lacklustre, but this morning’s positive open despite a flat U.S overnight and their negative futures is perhaps an indication that our market has received the future guidance well.
We stalled at 8,350 key resistance yesterday, but this morning has us testing 8,400. This is the next key level, and one that we reacted to intraday on Monday. It seems unlikely we push through, and it would be reasonable to expect a similar result to Monday where we pullback intraday day once again.
Markets look tired, with buyer fatigue setting in. We may continue to trudge higher, but we shouldn’t expect energy to come back in. Indeed, by the very least the market should continue to consolidate, if not have a dose of healthy profit taking. There has been only seven sessions since the lows in April where our market has finished in the red. Furthermore, we are only a few per cent away from our all-time highs. It doesn’t make a great deal of sense to see vigor return to the upside for now.
US Markets
US shares traded modestly lower overnight to end the recent string of gains. Prices did bounce firmly off the lows of the overnight session however. It brought to an end the six session string of gains for the SP500. Some profit taking shouldn’t be too unexpected given the recent run higher. Additionally, the uncertain economic situation is likely to also trigger future volatility. There was a lack of major data and events overnight, though there is a budget bill currently being negotiated by US lawmakers. The bill would provide $4.9trn USD in tax breaks and add to the ballooning US government debt. While the passing of the bill and tax breaks would likely be positive for the market in the short-term, it does add to the evergrowing US government debt problem.
Only three of the eleven sector groups of the SP500 closed higher overnight, with none of them making notable gains. Energy, Communications, and Discretionary stocks saw the most selling.
Technically, the SP500 remains firmly in an uptrend. In the short-term they look primed to reach 6,000. Should that level break, the next upside target would be the roughly all-time high resistance around 6,150. Currently though, the gradient of the trend remains too steep to be sustainable, and immediate term indicators like the stochastic remain heavily overbought. They are only roughly three per cent away from their all-time highs, but it would hard to suggest they will get there soon. It perhaps seems more likely they will have some profit taking or consolidation before reaching it considering how tired they look.
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