The XJO on Friday jumped higher following strong leads offshore, pushing the XJO back to the next resistance at 6,604. With the 5,547 resistance now broken, the downtrend could be coming to an end. But we cannot confirm an uptrend yet, as we may be starting to form a channel between 6,604 and 6,400. With the Futures down today we will likely hold the 6,604 resistance, If we break 6,604 the market will be looking bullish, with targets around 6,750. 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 closed slightly higher after a whippy session. 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, whilst the Asian markets were fairly mixed.
The S&P 500 pushed back to the top of the channel late last week after renewed optimism flowed through markets that the US and China could still strike a deal this month as they come back to the negotiation table. This came after China signaled they prefer not to escalate the trade dispute with the US by introducing more tariffs, but would prefer the approach the dispute in a calm manner. The index came up to test the resistance at 2,940 on Friday as they continue to buy the market up ahead of US Labor day.
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 on the FED on the 18th of September, most analysts are expecting another rate cut but the question is how much?
- The US September tariffs started yesterday 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 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 fell 3.00% and closed at 14.352%. The US volatility fell 8.22% and closed at 17.88%.
Crude was down overnight and is consolidating between $60US and $50US a barrel.
Gold is rising strongly with economic concerns rising.
Iron Ore seems to have settled for the moment after having a strong pullback.
The Aussie dollar is consolidating around 67.50 US cents.
The Australian futures closed slightly lower on Saturday morning, but we could see markets sell-off further as tariffs start to kick in and with US Futures falling 0.60% when they reopened. RIO and BHP were up on their ADR’s after Iron Ore jumped over the weekend. Weak manufacturing data from China over the weekend could also add to the negative sentiment starting the week off. The RBA is set to announce rates tomorrow at 2:30 pm and is widely expected to keep them on hold.