The coronavirus and stock indices in the week from 7/5 – 14/5/2020

The German stock index DAX has been declining for the last 3 days and the fear index VIX has reached 35 points. A lower high has formed on the SP 500 index, which may be the first signal that the growing movement we have had since March 19, 2020, might stop. Nervousness in the markets is caused by concerns about the second wave of the coronavirus, which may occur if restrictions are released too quickly. Reports from China, where new cases of the disease are beginning to emerge, also have a negative impact on market sentiment.

Fundamental analysis

The increase in new cases since April is between 75,000 and 95,000 cases per day. The course of development of newly recorded cases is shown in Figure 1: 

Figure 1: The global daily increase in new cases of the coronavirus infection

Worldwide, the coronavirus infections have already exceeded 4,430,000 cases. There have been 610,000 new cases since last week. Figure 2 shows the distribution of the disease by country.

Figure 2: Distribution of coronavirus infections

The previous WHO warnings of a massive pandemic spread in African countries have not yet been met. 
 

From the important economic data from last week we select:

 
  • In the US, more than 33 million people have applied for support in unemployment since March 2020. Analysts expect the number to increase by at least another 2.5 million this week.
  • US NFP data confirmed a loss of 20.5 million jobs.  Unemployment reached 14.7%.
  • The CPI in the USA for April is 0.3% on a year-on-year basis (1.5% for March). The central bank's goal is to keep inflation at 2%.
  • The auction of the US 10-year Notes reached a yield of 0.700%. The declining Notes yield, which has continued since February 2020, is signaling uncertainties about further developments.
  • In Canada, almost 2 million people lost their jobs in April (analysts expected 4 million). Unemployment is 13% in Canada.
  • Australia reported a loss of 594,000 jobs in April.


The impact of central bank stimulus measures on stock index sentiment seems to be gradually weakening, and investors are beginning to consider the additional risks of too rapid restrictions easing, which could also lead to a faster spread of the coronavirus. The chair of the US Fed has warned that the US could face a longer-term economic downturn and that the economic recovery could be slower than we would like.​
 

Technical analysis as at May 14, 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 continues to create higher high and low since 19.3.2020, as we can see in Figure 3, where we have the NASDAQ index on a daily time frame

Figure 3: The NASDAQ on a daily chart

Now, the NASDAQ has reached resistance on the gap from which it bounced down. The rising trend line was broken on May 1, 2020, and the price has been below it ever since. For a stronger confirmation of the trend reversal, it would be good to wait until a lower high and a lower low being created.

Resistance 1 is the upper part of the gap in the range of 9,360 - 9,500.
Support 1 is at the level of 8 577 - 8 620.

 

The SP 500


The price on the SP 500 is moving in a similar way to the NASDAQ, but we can also see that it is still below moving averages SMA 100 and SMA 200, which is a strong bearish signal. The index seems to have found a certain equilibrium price and since April 9, 2020, it has been trading in the range of 2,730 - 2,970. 
 
Figure 4: The SP 500 on a daily chart

Decisive for further growth will be whether the bulls will have the strength to overcome the current resistance band, which is in the zone 2975-3000.
Support 1 is in zone 2 720 - 2 740.
 

The DAX

 

The index continues to move below SMA 100 and SMA 200 moving averages, signaling a long-term downtrend. In addition, it has already happened that the SMA 100 has crossed below the SMA 200 since April 15, 2020, which is another strong bear signal, see Figure 5. As with the SP 500, a lower peak was created here on May 11, 2020, which signals that the growing movement, which began on March 19, 2020, might stop. 
 

Figure 5: The DAX on a daily chart

Resistance 1 is in the range 10 920 - 11 030.
The nearest support is in the range of 10 150 - 10 200.

 


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