The time has finally come! Markets couldn’t ignore the Coronavirus threat anymore. Especially that now we have a lot of new cases in Italy and South Korea. What markets are additionally afraid of is that thanks to new cases in new countries, we should finally find out the truth about how fast this virus spread and how deadly it really is. Nobody believed in the data from China. According to many experts, those number simply had no sense. Now, we should get reliable numbers and that is what scares the markets. The disease can simply be very fatal and contagious, beyond our expectations.
Both main indexes from the US and Germany, so S&P 500 and DAX fall very sharply today. We are falling from the high horse as in the last week, we managed to set the all-time highs on both of those instruments. Although today’s drops look scary, the situation in the long-term is still not that bad. Let’s start with the SP500:
The price broke the lower line of the rising wedge formation (red) and went lower. The drop is enormous but we are still above the two major supports. First one is the horizontal one above the 3210 points and the second one is the long-term up trendline, connecting the higher lows since the December 2018. As long, as we stay above those two, buyers can still be safe. The breakout to the downside, will give us a proper sell signal.
The situation on DAX is very similar but the German Index has more space to fall. The distance to crucial supports is bigger. Also, DAX can count on two major horizontal supports, not one. The first one is on 12900 and the second one is on 12630. A long-term up trendline is also here.
As you can see, the first shock is here but as for now, it is just a temporary shock, not a trend reversal. We all know that Covid-19 spreads and spreads fast. Now, time for a move from central banks. If the rapid selloff will continue, we should soon expect some helpful comments from Central Banks, which should block the bearish activity, at least for a while.
By the way, what a time to be alive… We all now wait for the help from Central Banks. Traders got used to their help so much that many of them do not consider other option then injecting another billions of dollars to the market. Mayday, Mayday. FED, ECB help us!