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Coronavirus and stock indices in the week from 2/4 – 8/4/2020

Stock exchanges started strong growth in the first week of Q2 2020. Some stock exchanges have already erased 50% of the Q1 decline and the SP 500 is now 18% below its historical high. Growth is mainly due to the commitment of central banks and governments to support the economy with unprecedented incentives and the hope that the pandemic will begin to stabilize soon as well. Some indices are now on interesting resistance levels, which can be used for speculation. More information is in our article.
 

Fundamental analysis

In the 2009 crisis, the SP 500 fell more than 50% from its 2007 historical highs, and it took more than 5 years for prices to return to their previous peak. This year, the SP 500 has fallen by 36% since its high in February 2020, and it has corrected this fall by half in the last three weeks as declines have attracted buyers who believe the collapse was too fast and too deep. The decline in the rate of increase in newly infected cases also supported the indices.

From the economic data point of view, however, there is no optimism for the growth. For example, the IMF chief said this crisis was much worse than the 2009 crisis. Morningstar estimates a decline in global GDP for 2020 to -1.4% (-0.1 in 2009). More information will show the economic results of companies. Next week, Bank of America and Citigroup will announce their 1Q 2020 results.

 

Current Statistics:

 
  • Coronavirus infection worldwide exceeded 1,520,000 cases. There are more than 435,000 cases in the USA, 148,000 cases in Spain, 139,000 cases in Italy, 113,000 cases in Germany and 113,000 cases in France. To date, there are 5,300 infected people in the Czech Republic.
  • Economic data points to deepening economic problems. Last week, the US claims for unemployment insurance reached a record 6.6 million. Similar numbers can be expected this week.
  • At the same time, the US reported a decrease of 700 thousand jobs in March. These figures will be much worse in April, when the full range of current restrictions will take effect.
  • The euro area PMIs in services fell to 26.4 in March (a minimum in the year 2009 was 38.9).

Technical analysis as at April 8, 2020

The markets are now in the bear mode with a sharp downturn. It is impossible to correctly determine the bottom of the bear market.
The moving averages we use in the technical analysis are EMA 50 - orange line, SMA 100 - blue line and SMA 200 - green line.

 

The NASDAQ Index

 

First, let's look at the NASDAQ Weekly Chart in Figure 1:

Figure 1: The NASDAQ on a weekly time frame

The price is rising sharply from a point B. At the moment it looks like a typical V-formation that resembles the one that formed after the collapse in 2018 at point X. At the time of the 2009 financial crisis, however, the price created a double bottom that is much more predictable to trading than V-pattern.

Currently it does not look that the price would start to fall. The H4 graph formed a gold cross constellation, which is a bullish signal. We will follow the reactions on individual resistance barriers. It is preferable to enter the trade in the short direction at the moment when it becomes clear that the price starts to fall. The closely monitored barrier is Fibo 61.8% which the price has almost reached and which many traders will respond to as well.

Points C and D show how hypothetically the price could move further. XABCD points define the harmonic pattern Bullish butterfly. If this pattern is fulfilled, the price could fall to 4,800 points (see point D).

Note: It may happen for bullish butterfly formation that the price reaches Fibo 88.6% (not plotted in the graph yet) and then begins to point downwards. 
Figure 2: The NASDAQ on a daily chart

In the daily chart, we can clearly see the bearish trend, when the so-called death cross was created at a point 1, when EMA 50 came under SMA 100. At point 2, an even stronger signal is starting to emerge.

In the bearish trend, it is better to look for places where it is suitable to speculate on the decline. These could be near some of the identified resistances:

Resistance 1 is in the band 8,500 – 8,600. Here is Fibo 61.8% of the decrease between points A and B. At the same time it is the level at which the daily chart EMA 50 fell below SMA 100 and thus confirms the downward trend. Currently it is also the level where the average SMA 100 is.

Resistance 2 is at the level of 9,050 – 9,100. It is the Fibo level of 78.6% of the distance between points A and B.

Support 1 is on the level of 7,900 – 8,000. There is a break of previous resistance.

Support 2 is in the band 7,370 – 7,460.

The chart shows the rising trend line, which starts at point B. The signal to decline could then be considered when a break of this line occurs, when the daily candlestick closes below it.


 

The SP 500 Index


There is a correlation between the NASDAQ and the SP 500, but there were interesting differences between them, as shown in Figure 3: 
Figure 3: The SP 500 on a weekly time frame

Here again, we can see that the index strongly strengthens and creates a V-formation, which also emerged after the decline at point X. Unlike the NASDAQ, the SP500 created a V-formation also during the financial crisis in 2009. The price is currently on an interesting resistance level. If the price falls down from here to the previous low at a point B, a volume of 0.01 lot would generate a profit of CZK 6,500. 
 
Figure 4: The SP 500 on a daily chart

The daily chart shows that there is EMA 50 below SMA 100 (point 1), but also below SMA 200 (point 2). This is strong bearish signal. Short speculation can be considered near resistances after it is clear that the price is starting to fall. Here too, the break of the rising line emerging from a point B with the daily close below it can be used as a confirmation. 

Resistance 1 is in the zone 2,720 – 2,750. The previous support from the weekly chart was broken here.

Resistance 2 is in the band 2,910 – 2,930. Fibo 61.8% between points A and B is here.

Support 1 is in the zone 2,625 – 2,640.

Support 2 is in the band 2,435 – 2,460.
 

The DAX Index


The DAX index fell to 7,986, which was last traded in June 2013. 
 

Figure 5: The DAX on a daily chart

Here too, we can see that the DAX has been strongly strengthening at the moment, reaching a level of Fibo 38.2% resistance, which is also a flip where previous support turned into a resistance.

The moving averages clearly signal a bear market and EMA 50 moves below both SMA 100 and SMA 200. In terms of price action, we have a lower low and we are waiting to see if a lower high is created as well. 

Resistance 1 is in the band 10,250 – 10,500. It is the level where previous support was broken and at the same time it is a Fibo level of 38.2% of the drop between AB points. The price is currently traded here

Resistance 2 is in the wide zone 11,060 – 11,500. When the market opened, there was a gap that tends to be filled, and at the same time it is an area of ​​previous support that has been broken. Also there is Fibo 61.8% of AB movement nearby.

The closest support is in the band 9,280 – 9,330.




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