What a start to the week it has been in the markets, with crude oil losing a fifth of its value and US stock index futures limiting down after falling more than the allowable 5% in a single session. But with the European markets staging a bit of an oversold rebound, US stocks will likely be allowed to trade when Wall Street opens later on – although they could get suspended again if selling resumes.
This is what happened to oil:
DAX plunges along with other European markets:
And this is how German’s DAX looks like intraday:
So why are investors panicking?
Well, first there is coronavirus and the growing worries over the spread and economic risks it poses. Virus cases have topped 109,000 worldwide with the death toll exceeding 3,800. Then you have oil prices crashing, hurting energy stocks and raising concerns over the economic health of the oil producing nations. Crude prices tumbled after Saudi Arabia launched an aggressive price war following Russia’s refusal to agree to new production cuts. With demand falling due to Covid-19 and the already-excessive supply set to get larger, a speedy recovery looks unlikely for crude oil.
What could save the markets?
Confidence. Right now, there is not much confidence in these markets. But any signs that the spread of the virus is slowing could be the trigger. Granted, the markets are heavily oversold, so you will get massive short-covering rallies here and there. But in so far as a lasting recovery is concerned, investor confidence will have to improve for that to happen. With global interest rates so low, some higher-yielding equities are beginning to look attractive again already. Indeed, there is a possibility that the central banks will intervene again to stem the falls for equity prices. So, a recovery could be just around the corner. In the long-term, lower crude and crude product prices may help support oil importing nations massively and increase consumer’s disposable incomes, although in the short term this will be overshadowed by the impact of the coronavirus.
S&P short hits target
Following the big gap lower at the open, our short S&P trade worked beautifully and hit the target. In case you didn’t see it, HERE is the link of the article and below is the before and after chart.
For more trade signals like this, check out my trade signals service HERE.
“So, a recovery could be just around the corner In the long-term, lower crude and crude product prices may help support oil importing nations massively and increase consumer’s disposable incomes, although in the short term this will be overshadowed by the impact of the coronavirus ”
I admire your optimism, sir.