The XJO pushed lower than expected throughout the day yesterday, but late buying reversed most of the move down. Locally, weakening GDP started to weigh on sentiment, but news from Hong Kong and China helped the market recover. Technically the XJO is forming a channel between 6,604 and 6,400. With the Futures up today, we will likely test the 6,604 resistance again. If we break 6,604 the market will be looking bullish with targets around 6,750. Otherwise, if we break 6,400, we will reconfirm the downtrend with target around 6,200 and the 200 day MA – which is also the 10% correction level. Our short term indicators are starting to look a bit overbought.
US markets push higher but held resistance. The Dow closed 237.45 points higher (0.91%) and the S&P 500 was up 31.51 points (1.08%). Most other major markets also closed higher.
The S&P 500 jumped back towards resistance following strong leads from China, after Hong Kong protesting eased following the withdrawal of the extradition bill. Additionally, there was stronger than expected services PMI in China. Brexit is also looking likely to be delayed again after MPs beat Borris Johnson, allowing a bill to block a no-deal Brexit. The 2 year US bond yields also fell back below the 10 year which also helped sentiment.
Technically the S&P500 has formed a channel pattern between 2,840 and 2,940 and is consolidating just below the key resistance level. If resistance breaks, markets will be looking more bullish. Otherwise if they fail from here, 2,840 will be the level to watch. The market will continue to monitor trade between the US and China which seems to be on a knife-edge at the moment. IV is still high, indicating that we will continue to see large movement in markets so we remain cautious. The FED will also play their role in the coming weeks where they are expected to cut rates on the 18th of September.
- The US September tariffs started last weekend on $110 billion of Chinese exports.
- Chinese retaliatory tariffs also kicked in. China introduced further tariffs on $75 billion worth of U.S. goods, including autos.
- The Chinese Yuan settled around 7.14 US dollars after hitting highs of 7.18.
- Both sides have confirmed that they prefer to negotiate rather than continue to escalate things further, despite last weekends confusion over calls from Chinese negotiators.
- Existing tariffs on $250 billion worth of Chinese goods to 30% from 25% starting will start in October.
- Delayed on Chinese goods will start on Dec. 15.
- China is making moves to help them become less reliant on exports by stimulating their local economy.
- Markets are hoping that they will get back to the negotiation table this month but hasn’t announced a date that they will.
XJO Implied Volatility fell 0.99% and closed at 13.995%. The US volatility was lower and closed at 18.98%.