With Coronavirus continuing to impact the market and push stocks into bear market territory, Joe Perry takes a look at the technicals.
Just when you thought it couldn’t get any worse, the World Health Organization (WHO) Director-General Tedros Adhanom Ghebreyesus has labeled the Coronavirus as a pandemic. There are no immediate policy actions that are triggered when something is declared a pandemic. Therefore, it is up to the governments of individual nations to decide on their own response to a pandemic. As we have been discussing over the past few weeks, governments and central banks around the world have been trying to provide both monetary and fiscal stimulus to help businesses who have been affected by the Coronavirus. However, that will not stop the spread of those infected. The WHO recommends isolation for those who have the Coronavirus or believe they have it.
The S&P 500 moved into bear territory today (moving 20% lower is the classical definition) but did not settle below it; the Dow settled 20% off its high, officially signaling a bear market. In doing so, the S&P has formed a flag pattern on a 240-minute timeframe. The target for a flag pattern is to take the length of the flagpole and add it to the breakout level. (I add the flagpole to the top of the flag for a more conservative target, below). In this case the target is 2625. The relative strength index (RSI) is still in neutral territory and still has room to move lower.
Source: Tradingview, CME, FOREX.com
On a 60-minute timeframe, the S&P 500 has moved lower from Tuesday’s highs, and tested Monday’s lows. However, in the short term, price is diverging with the RSI. There is short-term trendline resistance above at 2820 and then resistance at yesterday’s highs of 2882. First support at 2710, which was briefly clipped Wednesday afternoon, which is the 127.2% Fibonacci extension level from the Oct. 3, 2019 low to the Feb. 20 high. Below that is Monday’s lows of 2695.25, and then the flag target of 2625 (see chart).
Source: Tradingview, CME, FOREX.com
There is fear in the stock market. Is it justified given what we are told about the Coronavirus? It doesn’t matter! The market is always right!
