Following another day of sharp falls for European markets, index futures point to another weaker open on Wall Street. This will be the sixth down day, and will be interesting to see whether the shorts will continue to press on, or if there will be some tactical buying here and there. In any case, trading will remain tricky to say the least in these headline-driven markets. So expected to see some chop and churn as some major indices test their technically-important 200-day moving averages.
Right now there is only one thing on investors minds (hopefully not their bodies): Coronavirus. The markets continue to struggle amid growing concerns over the economic impact of the virus, with the outbreak spreading across Asia, Europe and now there has been a case in the US, too. Authorities are trying very hard to control and prevent the spread of the disease. In Japan, for example, the government has ordered to close down schools, while elsewhere many large gatherings such concerts have been cancelled. In Saudi, access to religious sites including those in Mecca and Medina will be restricted for pilgrims.
However, there was some good news from China. Here, fewer new cases of Covid-19 was reported on Thursday than South Korea, and local markets staged a relief rally.
China’s actions show the spread can be slowed down by being aggressive in their approach, but it obviously comes with an economic cost. The damage might be too much for weaker and struggling economies such as Italy, and those that rely on tourism from visitors of the affected countries. So, it is totally understandable why the markers have reacted the way they have. Investors are anticipating weaker economic output, which not only means weaker demand for commodities such as crude oil and copper but may also point to lower earnings growth for companies.
With this being the sixth down day, though, the probably of a snap rebound is increasing especially as major indices such as the DAX, Dow and Nikkei having already tested their respective 200-day moving averages and the S&P 500 looks could be next to do so. If you find short term bullish setups, my suggestion would be to stay nimble as the markets could chop around for a while yet, before potentially bottoming out.