The coronavirus and stock indices in the week from 14/5 – 20/5/2020

Although the NASDAQ 100 set a new high last week and is marching to an all-time high, other indices are currently moving more in a side trend. The VIX fear index has dropped to 29 points, but it is still well above the average value of around 15 points, indicating persistent nervousness. In addition to the effects of the coronavirus pandemic, investors are aware of growing tensions between the United States and China. Global virus cases passed 5 million. 

Fundamental analysis

The increase in new cases worldwide has continued to range between 75,000 and 106,000 cases per day since April. The course of development of newly recorded cases is shown in Figure 1: 

Figure 1: Daily increase in new cases of the coronavirus infection worldwide

Worldwide, the coronavirus infections have already exceeded 5,100,000 cases. There have been recorded 670,000 new cases since last week. Figure 2 shows the distribution of the disease by country.

Figure 2: The distribution of the coronavirus infections

Thus, previous WHO warnings of a massive pandemic spread in African countries have not occurred yet. However, there is less testing in these countries, so the statistics may not be complete. A new outbreak is emerging in Brazil, where more than 100,000 new cases have been added since last week. More than 70,000 new cases have been reported in Russia. According to Andrey Ammon, director of the European Center for Disease Prevention, Europe should prepare for the second wave. The question is when and how big it will be.

A piece of positive news - Greece will allow foreign flights directly to tourist centers after July 1, 2020.
 

From the last week important economic news we select:

 
  • According to the WTO, the volume of international trade has fallen to its lowest levels in at least the last 4 years. For example, South Korea's exports fell by -25.1% in April (-0.7% in March). Imports decreased by - 15.8%. (in March there was an increase of 0.3%).
  • Industrial production in China increased by 3.9% in April and is approaching pre-coronavirus levels. On the contrary, retail sales in China show a further year-on-year decline of -16.8% in April. The pre-crisis average was an increase of 8%.
  • In the US, more than 36 million people have applied for unemployment support since March 2020. Analysts expect that this number should increase by at least another 2.4 million this week. In relation to weak employment data, the retail sales fell by -21.6% on a year-on-year basis in the US in April.
  • Generally, inflation is very low mainly due to low oil prices. In Canada, for example, the CPI for April is -0.2%, the Eurozone reported 0.3%, Britain 0.8%. Low inflation may trigger further central bank support measures that might support stock indices.


 

Technical analysis as at May 20, 2020 

The moving averages we use in the technical analysis are EMA 50 - orange line, SMA 100 - blue line, and SMA 200 - green line. In addition, the charts are amended with so-called hidden 123 gaps, which function as resistances and supports.

 

The NASDAQ 


The NASDAQ is the index that has strengthened the most of all indices and it has continued to create higher high and low since March 19, 2020, as we can see in Figure 3, where we have the NASDAQ index on a daily time frame:
Figure 3: NASDAQ on a daily chart

The moving averages of EMA 50 and SMA 100 formed a bullish constellation of the Golden cross last week (a situation where EMA 50 is above SMA 100 on a daily chart). The index is moving in a rising wedge and the price has closed a bearish 123 gap, which may become a current resistance. At the same time, however, the candle on May 18, created a bullish 123 gap, which confirms the current strong bullish sentiment.

Although the economic fundamentals are not favorable, there are not stronger signs of a reversal in the movement of this index at the moment. The first signal of a trend reversal might be the moment when the price would break through the lower trend line of the rising wedge.


Resistance 1 is the upper part of the gap in the band around the value of 9,500. Another resistance is at the all-time high in the band 9,730 – 9,760.

 Support 1 is at the level of 9,160 - 9,280, which is the last 123 gap.

 

The SP 500


Also in this index, a bullish 123 gap was created on May 18, 2020, but the price continues to be below the moving averages SMA 100 and SMA 200, which are in a bearish constellation and index is continuing to move more in a sideway. The index has reached the level of horizontal resistance were at the same time there is a confluence with resistance on SMA 100. The Purple Extreme indicator shows that the price is overbought.
 
Figure 4: The SP 500 on a daily chart

Decisive for further growth of the index will be whether the bulls will have enough strength to overcome the current resistance band, which is in the zone 2,975-3,000.

Support 1 is in the zone 2,866 – 2,910, which is the current bullish 123 gap. Further support is then in the range of 2,720 - 2,740.

 

The DAX

 

The index is currently moving very similarly to the SP 500 index. The Dax is still below SMA 100 and SMA 200 moving averages, signaling a long-term downtrend. However, the price is moving in a growing channel, and, as in the US indices, a bullish 123 gap was created on May 18, 2020.
 

Figure 5: The DAX on a daily chart

Even as the Purple Extreme indicator is in the overbought zone, it would be more appropriate to wait for a moment for the price to break through the lower trend line of the growing channel for possible short speculations.


Resistance 1 is in the range 11,330 - 11,740. Here we have a gap that has not been filled yet.
The nearest support is in the range of 10,540 - 10,910. Another support is in the range of 10,150 - 10,200.

 

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