MARKETS SPECTATOR: US switches to buy the dip

US markets have rallied with indications investors may be 'buying the dip'. Australia's bourse looks set to continue the momentum after yesterday's non-event.

US markets have rallied throughout the session overnight after they opened lower despite a better-than-expected economic reading into retail sales and some better-than-forecast earnings reports.

It’s encouraging to see sentiment switch to ‘buying the dip’ rather than ‘selling the rallies’ which had been the dominant pattern for the best part of the last week. The 1425-1428 level on the S&P 500 has been confirmed as an area of support given the buyers that emerged overnight. This should see the index push back up into the recent trading range.

Following yesterday’s flat, uninspiring session the local bourse looks set to follow overnight leads higher with S&P/ASX 200 futures pointing to an open north of 4500, or around 0.6 per cent firmer than yesterday’s close.

Financial and healthcare sectors have been the standout performers offshore so we should see some buying interest locally for these names. Elsewhere, it looks like broad-based gains too as the buyers return from yesterday’s hiatus.

Gold stocks may see some pressure, however, after the precious metal slumped more than 1 per cent to lows of $US1726/oz following the moderately upbeat US economic data and the strengthening of the US dollar.

Interestingly, price action on the charts is starting to see gold look vulnerable to the downside following its very strong recent run. It’s a very crowded trade to be long gold so we may see a rush for the exit door in the short-term as traders look to take some profits off the table.

Locally, trade is going to be dominated by the positive offshore sentiment as well as the RBA Monetary Policy Meeting Minutes, which are due for release at 1130 AEDT. Economists country wide will be pouring over these for clues to back up the widely held view that we’re going to see further interest rate cuts in the coming months.

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