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Coronavirus and stock indices in the week from 8/4 - 15/4/2020

While the number of cases infected with the coronavirus is growing, stock markets have continued to strengthen and, for example, the NASDAQ has already wiped out 60% of the decline in Q1 2020. However, index prices are now near interesting resistances, and the first confirmation has been formed on the DAX that the current correction might halt. We bring more about this in our article.

Fundamental analysis

Current Statistics:

 
  • Worldwide, the coronavirus infections exceeded 2,090,000 cases. Most cases are in the United States, where more than 640,000 are infected. There are 6,300 infected in the Czech Republic to date. Current statistics show a slowdown in the growth of new cases.
  • Last week, the number of applications for unemployment insurance in the US again reached 6.6 million. In total, more than 16 million people have applied for insurance in the last three weeks.
  • The US CPI fell by -0.4% month-on-month in March (0.1% in February). In addition to low demand, low inflation is also affected by low oil prices.
  • Retail sales in the US fell by -8.7% in March (down -0.4% in February). In the crisis of 2008 – 2009, the lowest decrease was -2.8%.
  • Goldman Sachs, Citigroup and Bank of America Bank reported deteriorating of results for 1Q 2020. For example, the BoA's earnings per share fell to $ 0.40 compared to an expected $ 0.59. At the same time, banks have increased provisions for bad loans. 

Technical analysis as of April 15, 2020

The markets are now in the bear mood, 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 continues to rise sharply from a point B. At this point, it looks like a typical V-formation, similar to the one that formed after the 2018 slump at the point X. During the financial crisis in 2009, however, the price created a double bottom, which is much clearer for trading than the V- formation.

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

Note: For the pattern of a bullish butterfly, it can also happen that the price reaches Fibo 88.6% (it is not drawn in the chart yet) and then it starts to go down. 
Figure 2: The NASDAQ on a daily chart

From the daily chart we can clearly see the bearish trend, when the so-called death cross was created at point 1, when EMA 50 came under SMA 100. In point 2, EMA 50 even came under SMA 200.

In the bearish trend, it is better to look for trades to speculate on the decline. However, it does not seem that the current correction wants to stop. The price is now near the level of interesting resistance at Fibo 61.8%, but we have no confirmation of movement change. Confirmation can be on the H1 chart when EMA 50 falls below SMA 100 or eventually when the price closes below the ascending line defined by points BE.

Resistance 1 is in the band of 8,500 – 8,600. Here, there is Fibo 61.8% of the decrease between points A and B. At the same time it is the level on 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. It is also the level from which the previous strong decline was initiated, so it is possible that this will happen again.

Resistance 2 is in the zone 9,050 – 9,100. It is a Fibo level of 78.6% of the decrease between points A and B.

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

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


 

The SP 500 Index


There is a correlation between the NASDAQ and the SP 500, but there are interesting differences between them. While the NASDAQ is above the moving averages on the weekly frame, the SP 500 is still below EMA 50 and below SMA 100 as shown in Figure 3
Figure 3: The SP 500 on a weekly time frame

Here too, however, we can see that the index strengthens strongly and creates the V-formation, which also happened after the decline at the point X. Unlike the NASDAQ, the SP 500 also created the V-formation during the 2009 financial crisis.

On the daily chart, see Figure 4, we can see that there is EMA 50 below SMA 100 (point 1), but also below SMA 200 (point 2). This is a strong bearish signal. The price is now around the average EMA 50, which can work as resistance. Here, too, short speculation is appropriate near resistances after it is clear that the price begins to fall. 
 
Figure 4: The SP 500 on a daily chart

Resistance 1 is in the band 2,900 – 2,930. Here, there is Fibo 61.8% of the movement between points A and B.

Resistance 2 is in the zone 3,120 – 3,150, where is Fibo 78.6%.

Support 1 is in the zone 2,630 – 2,650.

Support 2 is in the band 2,430 – 2,460.
 

The DAX Index


The DAX index fell on March 19, 2020, to 7,986, which was last traded in June 2013. Moving averages on the daily chart continue to signal a bear market. 

Figure 5: The DAX on a daily chart

Here, we can see that the DAX continued to strengthen strongly and broke the resistance at Fibo 38.2% last week, where the flip also is. A candlestick from April 15, 2020, is strongly bearish because the price closed below the low of two previous bullish candlesticks. A cross of death was formed on the H1 chart, which could indicate a further fall in price. For stronger confirmation of the reversal of price movement, it is also possible to wait for the rising line defined by points BC to break downwards.

If a trader entered the sell order at the price of 10,420 with a volume of 0.01 lot, speculation on the price decline to 9.360 would bring a profit of CZK 7,100. With a stop-loss order above the high of a candlestick from April 15, 2020, at the price of 10,780, it would mean risking the amount of CZK 2,400. Such a trade would potentially bring RRR almost 1: 3.

Resistance 1 is in the wide zone 11,060 – 11,500. When the market opened, there was a gap that tends to fill, and at the same time, it is an area of ​​previous support that has been broken. Also nearby there is Fibo 61.8% of AB movement.

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





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