For four days now the XJO has stalled at 6,750 – with this level holding strongly as resistance. Despite this, the market has otherwise maintained its uptrend, formed over the past month. This uptrend will likely break this morning however, with our index set to open significantly lower. A break of the uptrend could see our market eventually fall back towards the 6,630 support, if that breaks, 6,500 would be the next key target to the downside for our market. If the XJO can reverse and break 6,750 – we should see our index head back to the all-time high close to around 6,851. Overnight we saw RBA Governor Philip Lowe speak and indicate further rate cuts – this time his reasoning was to keep the Australian dollar low – most had been expecting an indication of an October rate cut, and this was likely partially responsible for recent strength; regardless, with rates set to go below 1 percent in Australia for the first time ever, the RBA is running out of room to play with.
Northern Star Resources Ltd (NST)was up +3.3%, after gold price rose to a two-week high as weak economic data from the Euro Zone stroked global recession fears and forced investors to seek refuge in bullion. CYBG Plc (CYB) was down -4.4%, amid concerns over the European economy following weaker than expected economic data. Orocobre Ltd (ORE) declined -4.3%, following a broker downgrade to Underperform from Neutral.
US markets closed significantly lower, following the initiation of impeachment proceedings against Trump. Trump also reignited Trade War worries, using a speech to lash the economic and trade practices of the Chinese. The Dow closed 142.22 points lower (-0.53%) and the S&P 500 was down 25.17 points (-0.84%). European mostly closed lower, whilst Asian markets were higher yesterday.
US markets fell following the announcement that House Speaker Nancy Pelosi would announce a formal impeachment inquiry of President Trump, partially because of a phone call with the Ukrainian President. US markets pared back losses however when Trump stated he would release a transcript of the call. Trump also used a speech to the UN to blast China and globalism, stating that the future belongs to patriots, causing additional concern to markets. Technically S&P 500 broke through potential support around 2980 overnight, and immediately fell towards to the next level at 2,955 before rising somewhat. If the S&P 500 continues to fall from here, the next level of support is 2,940, but if that breaks, it should fall to 2,840. If it can rise from here, there is resistance at 3,020.
XJO Implied Volatility fell 0.84% and closed at 13.015%. The US volatility was up 10.15% and closed at 17.05%.
Crude fell overnight on signs that Saudi Arabia is making progress is restoring capacity following the drone attack.
Gold is continuing to rise with uncertainty, and now looks set to rise towards the $1,550 USD resistance level.
Iron ore fell overnight, continuing its whippyness below the key $100 USD per tonne resistance level.
The Aussie dollar rose a little overnight, despite the RBA Governor indicating future rate cuts.
The ignorance of our XJO to the volatility seen elsewhere this week looks to be our undoing today, with our index poised to experience far more significant losses than Northern Hemisphere markets overnight. Whether or not this continues past the open is uncertain, as we can now look forward to another RBA interest rate cut next Tuesday. Our market may also be buoyed by the prospect of some banking dividends in late October and November. Regardless, stocks are expensive at current prices relative to historical averages – and there is a significant amount of uncertainty and weak economic fundamentals on top of this. This may not be the beginning of significant falls, interest rate cuts around the world could keep markets higher for a while yet. However, there is likely much more room to the eventual downside in a sell-down than there is further room to the upside.
Today’s trading. In the U.S., data on MBA mortgage applications to be published.