The XJO is expected to open around 20 points higher this morning at roughly 8,785 index points. However, things could change as our futures reopen at 9:50 AM AEDT.
US markets initially traded firmly lower on Friday, with initially strong selling as tech and AI related stocks fell. However, dip buyers returned to other sectors, which saw US markets finish in the green. In general things are starting to look a bit more negative for the US as tech and AI valuations start to be questioned.
The XJO index has fallen back to the support level around 8,750 and we have so far held above this level. However, we haven’t particularly looked like bouncing from here, and indeed you can still draw the index with a short-term downtrend line. This leaves us inside a descending triangle in the short-term and a downside breakout is certainly not out of the question. Should we break below 8,750, we would expect selling to the next key level of 8,650. Should we rise from here and break the downtrend line, we would expect a rise to 8,880 as the first upside target.
This global everything rally started exactly two years ago with central banks starting to cut interest rates. Now, central banks are finishing with their rate cuts, with markets expecting maybe one ore two more cuts here or there. This does present a real risk to this record bullish run, and it is certainly worth noting that earnings growth has not kept up with share price growth.
However, with the US Federal Reserve still expected to cut in December, another final run into the end of the year is certainly not out of the question.
Australia is also seeing some bank reporting at the moment, which have so far been very poor relative to share prices. However, the banks haven’t really fallen very far. This shows us that we are currently in an index led market, rather than a stock led market – meaning that trends, supports, and resistances on the XJO are very relevant at the moment.
US Markets
US shares rebounded on Friday after initially trading firmly lower. It was the tech and AI related stocks that led the selling, with NVIDIA closing 4 percent lower, taking the share price down more than 12 percent for the past week. Also denting sentiment was a report from the University of Michigan that showed that its US November consumer sentiment index dropped to 50.3, the lowest since June 2022. Consumer inflation expectations also rose. Finally, the US government shutdown continues with more services being cut off and more travel disruptions. Many flights are currently grounded in the US due to a shortage of air traffic control (who aren’t currently getting paid). While dip buyers did steady things on Friday, US markets are starting to look a lot more negative on the whole.
Nine of the eleven sector groups of the SP500 closed higher on Friday, with Energy, Utilities, Real Estate, Materials, and Staples the best performers. Communications and Technology stocks were the only ones to close lower on average.
Technically, the SP500 initially broke below the longer-term uptrend line on Friday, before rebounding to finish above this line. The index has been on an uptrend and potentially an acsending channel but has worked its way back to the bottom of the channel. We now need to wait and see if the index can bounce from the trend line and closes above 6,750, which would indicate a rise back to the all-time high resistance of 6,900, or if the index breaks below this trend line. Should the index break below the trend line, we could see a drop back to the next support at 6,550.