With Wall Street bucking its Thanksgiving trend, the ASX could struggle

Wall Street indices took the unusual step of falling the day ahead of Thanksgiving, thanks to a combination of weak earnings and strong inflation data. Thanksgiving ‘eve’ usually sees the S&P 500 post positive average and median returns in the lead up to the long weekend each year, while also posting the stronger returns of the three days either side of Thanksgiving itself. But not this year.

Nasdaq 100 futures led the declines during its worst session in eight and S&P 500 futures formed a two-day reversal (dark cloud cover) beneath its all-time high (ATH). The Dow Jones also posted a small bearish engulfing day at its record high. Which pleased me greatly as just yesterday I was questioning if bulls really wanted to be long the S&P 500 at its record highs, given price action clues on the Dow and S&P 500.

Super core PCE had a trick up its sleeve in October, rising at its fastest pace in eight months by 0.4% m/m. The second consecutive increase on the month also places it above its long-term average of 0.33%. Personal consumption increased at its fastest month in nine by 0.6%, also marking a faster pace for a second month. And both serve as a reminder that we could be facing a second round of inflation, fresh on the heels of yet another batch of higher consumer sentiment. Both the US Conference Board and University of Michigan showed consumer sentiment rising either side of the US election, and prospects for further inflation remain elevated with US economic data heading into Trump’s second term.

Events in focus (AEDT):

• 08:45 – NZ business confidence
• 11:30 – AU capital expenditure
• 19:55 – AU RBA governor Bullock speaks
• 20:00 – DE state CPI, EU money supply, loans
• 21:00 – EU European Sentiment Indicator
• 00:00 – EU CPI
• 00:30 – CA average weekly earnings

ASX 200 futures (SPI 200) technical analysis:

The local share market has clearly struggled to challenge, let along conquer, the 8500 level. A bearish divergence has formed on the daily RSI, and given the weak lead from Wall Street I suspect the minor overnight rally could be a trap for bulls to enter so close to its record high.

A bearish divergence has also formed on the 1-hour chart. Prices are rising within a bullish channel, which to my eyes appears corrective in nature. This leaves the potential for a ‘last hurrah’ higher within the channel before an anticipated break beneath it, and move down to the weekly pivot point (8389). Note a weekly VPOC at 8348 and weekly S1 just beneath 8300 which could also provide bearish target should sentiment sour.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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