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At last week’s Share CFD clinic webinar session on Thursday we discussed the current market response to Coronavirus and key technical levels that could be important.
Clearly market reaction has been significant, market sentiment over the last week has given a clear sentiment message as to the adverse financial implications of Coronavirus.
Of course, this type of reaction to a potential global health epidemic is not unusual – there are many such similar instances and consequent reactions through history of financial markets.
Historically, in terms of how equity markets move may be worth a little more discussion. The following points are worth consideration:
So, what are these “landmarks”?
There appear to be two types that get market attention namely:
With the former, these key levels and subsequent definitions often cited are;
They may be related to indices, sectors and individual stocks.
So, what happened?
If we look at the US500 (CFD associated with the S&P500) on a daily chart as this is what we can access on our MetaTrader platform (see below) there are a few interesting things of note from this week.
Prior to Thursday session which we discussed at the webinar, the close for the previous day (and subsequent action pre-market) had the price testing both the 10% correction level and the 200 SMA (Simple moving average) at the 3054 level.
As price approaches any such key level, there are two things that are often seen in trader behaviour:
One final point of note. Clearly any index is made up of a ‘basket’ of different stocks from different sectors. In any market downturn or upturn where it has an economic implication, the so called “cyclical” stocks respond more significantly than traditionally defensive stocks. Hence, these sectors e.g. basic material, microchips, consumer discretionary have tended to get hit hardest which may be over 15% down from highs and some even approaching bear market territory.
Does Friday’s action mean that we have seen a bottom?
In another volatile session for equity markets, we saw a low at 10am US EST, and a close near the highs of the session. The candle showed what could be interpreted as a reversal candle with higher close than open and a long wick suggestive of a market rejection of a further move downwards.
Three VITAL points here of note if you are considering whether this may be a ‘bottom’ forming.
Clearly, the market will continue to give us messages but the main ones in terms of your trading (which we hope this article may have helped with) are:
We will be discussing these issues further in this week’s webinar sessions (including tonight’s Inner Circle) which we would be delighted if you could attend, if you are not already part of this weekly education group you can join us at 7.30pm AEDT this evening HERE
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