The XJO yesterday pulled back slightly after testing the 6604 resistance level. It is becoming likely that we are forming a channel between 6,604 and 6,400. With the Futures down today, we will likely hold 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.
US markets were closed for Labor Day. On Friday the Dow closed 41.03 points higher (0.16%) and the S&P 500 was up 1.88 points (0.06%). Most European markets closed higher overnight, whilst the Asian markets were mainly lower yesterday.
The S&P 500 hasn’t given us a lead yet after the additional tariffs were introduced on Sunday. At this stage, the S&P500 futures are indicating a fall of 19 points. Technically the S&P500 has formed a channel pattern between 2,840 and 2,940. Until we see a break of either one of those levels it is hard to have a directional view on the market. Markets will be looking for any further hint of escalation and whether China will further retaliate against the US in the coming months. The 2-year and 10-year US bonds continue to invert further, indicating a recession could be on its way. Otherwise all eyes are on the FED on the 18th of September with most analysts expecting another rate cut; but the question is how much?
- The US September tariffs started on the 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 continues to depreciate against the USD.
- 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 tariffs 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
XJO Implied Volatility was up 0.05% and closed at 14.359%. The US volatility was up 5.80% and closed at 18.98%.
Crude was down overnight and is consolidating between $60US and $50US a barrel.
Gold is rising strongly with economic concerns rising.
Iron Ore jumped higher overnight, looking likely to start to recover from a strong pullback over the last few months.
The Aussie dollar is consolidating around 67.50 US cents.
The RBA will announce rates today at 2:30 pm and they are expected to hold rates for now. Most analysts are predicting a strong chance for a cut in October. Meanwhile, strong moves in Iron Ore could help out the miners today but the moves could be a little offset by moves down in other base metals. Tomorrow all eyes will be in the Australian GDP numbers to get a stronger feel on how the economy here is moving along. How the US trades tonight will also go a long way to leading our market either through resistance or back to the bottom of the channel.