Friday, we saw Oil and metals fall, as a result, BHP and RIO were down in their ADR’s 3 to 5%. Financials were also down in the US with the banks reporting late last week. The banks beat expectations, but that was not enough to keep the rally alive. JPMorgan was up around 50% since November, Citigroup was up almost 70%.
So, at this stage, the pullback we are seeing seems more like some profit-taking rather than something of fear or uncertainty. Energy, Banks, and Materials have all had very strong rallies recently. At this stage knowing what we know about up-and-coming infrastructure spending and more stimulus, we see this pullback as a buying opportunity. It is all about timing.
The mood may stay a little cautious this week as we see Joe Biden Sworn in on the 20th Jan. Everyone will be watching to see if there will be more rioting. Furthermore, investors will be waiting for an indication of how long it will take to see more stimulus.
Australian Outlook
The XJO is expected to fall on the open to near 6670 this morning. This is following negative leads from the U.S in both their Friday session and their futures this morning. Considering how things are looking right now, it is reasonable to expect a decent bearish today.
It seems once again our market is unwilling to push through 6750 or there abouts. On Friday we reversed our gains from that key level of resistance to finish in the red in clear defiance of any prospect of pushing through. Todays expected losses will confirm the bounce off that key level, keeping us in the tight channel we have traded in since roughly the start of December. There is interim support 6666 or there abouts – a number our market seems to hang around. The bottom of the channel though sits clearly around the 6600 level.
The consolidation at the top of the range may lead to a continuation pattern, or a reversal pattern. Which it will be will largely come down to how the U.S plays out in several key areas. Arguably the most important data coming from across the waters is their reporting season. Friday saw some of their major banks fall despite most beating expectations. This may simply be because the reports came following a good run already. Don’t be surprised if that affects our major banks in our following sessions.
US Markets
US shares closed lower on Friday, with shares falling fairly strongly on the back of President Elect Joe Biden’s plans to set a floor to company tax rates. We also saw company earnings reporting start, with JP Morgan, Citigroup, and Wells Fargo reporting fairly weak earnings (though better than expected) and falling strongly in price. We will see much more from US earnings reporting this week.
US economic data was fairly weak on Friday, with retail sales, PPI, and consumer sentiment all weaker than expected, though industrial production was stronger than expected. Oil & Gas and Basic Materials fell the hardest on Friday, while Utilities, Telecoms, and Health Care stocks were the only ones to close higher. US markets will be closed tonight for Martin Luther King Jr day.
Tim Michaelides is the Head Trader at Emerald Financial Group.
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