The XJO reached its all-time high resistance around 7,150 yesterday, before pulling back. Our market looks set to open fairly flat today, and if it falls from here, the technical pattern will be a double top – a bearish pattern indicating downwards movements. The XJO will have to break below the uptrend line (which comes in around 7,075), this pattern will be confirmed and we could expect further downwards movement. The key support level is some potential support around 7,000 index points. If the XJO falls and closes below the 7,000 support level level – I imagine we will see further selling in our market, with 6,880 as the next key level. Should our market break 7,150 to the upside, we should see further gains for our XJO, but with no further levels of resistance, it is hard to say where a potential rally may stall.
US markets pulled back overnight after a big jump in the number of coronavirus cases and the announcement of the Fed Reserve that they will cut back on repurchase agreement operations. The Dow closed 128.11 points lower (-0.43%) and the S&P 500 was down 5.51 points (-0.16%). Asian and European markets mostly closed lower as well.
The Repurchase (REPO) Operations done by the Fed Reserve have been described by some as QE lite, whether you agree with this or not, the scale back definitely had a tangible bearish effect on US markets overnight. There was also an announcement that Vietnam is quarantining an area of 10,000 people, the first major coronavirus quarantine outside of China. Technically, The S&P 500 pulled back from its all-time highs overnight, but also finished above its daily lows. The S&P 500 now appears to have formed resistance around 3,375-3,380 after failing to break through that level yesterday and today. The market is still bullish and on an up-trend so if it rises through 3,380 – it is hard to say where the current upwards movement may end. However, given that markets like nice round numbers, the 3,400 level may be the next target to the upside. To the downside, the 3,350 level may act as something of a support level. If 3,350 goes, there is a key level at 3,300 – if that breaks we should see some further downwards movement.
XJO Implied Volatility was up 3.41% and closed at 13.278%. The US volatility fell 7.28% and closed at 14.15%.
US oil bounced back somewhat overnight, despite the jump in virus cases.
Gold rose substantially again overnight, prices remain extremely strong at these levels.
Iron ore rose again overnight, continuing a four day rally.
The Aussie dollar fell slightly against the US dollar. Our dollar is still trading near decade lows.
The jump in virus cases and announcement of the cutting back on Repo operations were two big bearish news items for the market, so it is incredibly surprising that we didn’t see too much of a bearish move overnight. That goes to prove just how bullish markets are at the moment and how much momentum there is to the upside. Regardless, that does not mean that things can’t turn down from here; and there are a few things that could cause this – such as a continued expansion of the coronavirus or weakness in earnings reporting. The earnings season is ticking along roughly as expected, which doesn’t bode particularly well for the current lofty valuations. With any trade or investment at the moment, make sure you check a company’s investor calendar first.