The XJO should open substantially higher after a strong futures close overnight, which could potentially be put down to a strong drop in the Australian dollar. Technically, the XJO is trading in a pennant pattern, between a downtrend line that comes in around 6,750 (where there is also some resistance), and a short-term uptrend line that comes in around 6,650. The XJO should rise to the top of the pennant today on open, around the 6,750 level. If the XJO continues to rise from here and breaks through 6,750 – the all-time highest close at 6,851 is likely the target. If the XJO breaks through the short-term uptrend and the support at 6,630, the next target to the downside would be a more gradual, longer-term uptrend line around 6,550. Watch for movements in the US markets, and our bank reporting at the end of the month for clues on the next directional move for our market.
JB Hi-Fi Ltd (JBH)was up +6.8%, after the Company reported 1Q20 total sales growth of +4.7%, with comparable sales growth of +3.7%. Qantas Ltd (QAN) was down -3.7%, after the Company flagged higher fuel costs and international headwinds for FY20, with management expecting protests in Hong Kong and deteriorating global trade conditions to negatively impact FY20 profit by as much as A$55m.
US markets were mixed overnight, with tech stocks doing most of the heavy lifting following some positive earnings results. The Dow closed 28.42 points lower (-0.11%) and the S&P 500 was up 5.77 points (0.19%). European and Asian markets were mostly higher.
US earnings were once again mixed with strength in Microsoft and Intel’s reports somewhat offset by weak reports from 3M and Amazon. Technically, the S&P500 opened around the next resistance at 3,015 – 3,020 before falling back down, if that level breaks, the all-time high would be the target (3,027). The index actually fell almost to the 3,000 level before bouncing a little. If the index falls through 3,000, it could be expected to head back to some potential support at 2,960, followed by 2,940. If those supports fail, 2,860 would be the target.
XJO Implied Volatility fell 3.31% and closed at 12.188%. The US volatility fell 5.47% and closed at 13.71%.
Crude continued its rise again overnight and continues to look bullish.
Gold rose overnight and broke back above the key $1,500 USD support/resistance level.
Iron ore bounced overnight, but has been down-trending in the short-term.
The Aussie dollar fell quite strongly against the US dollar overnight.
Today’s trading: In Japan, data on machine tool orders is to be published.
Some weakness in the Australian dollar looks set to cause some strength in the Australian stock market today. Despite this, ADRs for the banks and miners were largely flat to lower, so it will be interesting to see what does the heavy lifting today. Our market looks set to head right into the point of the pennant on the chart above, which likely means some strength today, followed perhaps by some weakness early next week. An article in the AFR this morning implied a high likelihood for the banks to soon start issuing shares to raise capital, as they did in 2015, which caused a sell-off in the banks then, and could impact share prices this time around as well – watch for the bank reporting at the end of the month for further indications on this.