The XJO is expected to edge lower on open this morning at roughly 8,970 at time of writing. This follows a rebound from all-time high resistance in the U.S overnight that resulted in their market closing marginally lower. They were unable to break higher, and our market is likely taking a breather in response.
Yesterday we opened in fresh all-time highs at roughly 8,950, but pulled back to shed practically all the opening gains to finish flat. We are overdue for some mean reversion in the form of consolidation or a pullback. Perhaps the past couple of sessions and this morning’s quiet open are the beginning of one.
8,950 remains the key level of resistance, and roughly 8,900 and 8,850 are the key supports. The underlying uptrend comes in at roughly 8,750, but we shouldn’t expect the market to meet with it anytime soon. For now, we continue to expect the market to remain bullish to sidewards. Considering it has been rather bullish lately, more sidewards seems warranted.
However, we have a few key events this week which could be the trigger for some profit taking. The minutes from the last RBA meeting are being released this morning at 11:30am (AEST). In the last meeting, future guidance was rather lacking. Perhaps the minutes will shed more light. Tonight, we have U.S consumer confidence numbers, which are expected to continue declining. This seems likely to be a non-event.
US Markets
US shares fell overnight, with selling across the three major US indices. US shares pulled back after their strong gains on Friday, with fairly notable profit taking. It could be that the US indices found resistance. US shares were up on Friday after the speech from Federal Reserve Chair Powell, who opened the door for a September rate cut. Some investors may have taken the view overnight that the FED will cut in September, but that wouldn’t necessarily mark the start of a broader period of easing. There will be a major test for US markets later this week, with more US inflation (PCE) data on Friday. that data is expected to show ticking slightly higher, which could test the FED’s resolve around further rate cuts. Should that reading come in higher than expected, we would expect selling.
Two of the eleven sector groups of the SP500 closed higher overnight, which were Communications and Energy. Every other sector closed lower, with Staples, Healthcare, and Utilities seeing the most selling.
Technically, the SP500 held below the all-time high resistance at 6,480 overnight. The index jumped strongly to this level on Friday with the dovish comments from Powell. The index remains in an overall uptrend and we could expect this level to break and for a new higher resistance (higher peak) to form. Though we expect it, we will need to wait for a breakout for confiration. A close above 6,480 therefore indicates further gains. Should the index fall from here, the recent low around 6,350 would be the support level to watch. With the index selling for most of last week (up until Friday’s big gain), that does provide some runway for the index to move higher. Additionally, the stochastic also fell over that time, but it has now crossed, and turned to point higher from the lower end of its range, indicating further gains.
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