You’d think traders deserve a calm weekend after the panic selloff that we experienced in February but the market has a totally different opinion on the matter.
Monday has started with massive bearish gaps in major stock exchanges and yes, coronavirus is still to blame but we have a new player in the game – oil.
If COVID-19 was not enough, Saudi Arabia started a price war on the oil market. They slashed their oil prices and announced a boost in production, significantly increasing global supply. If we combine that with a crippling demand from China, then we have an explosive mixture, which actually has just exploded dragging the price of oil to new, long-term lows. At the same time, our previous analysis of oil from last week came to fruition much faster than expected.
A drop in oil prices would be normally good for stocks but this time it’s different. Now, it’s just unnecessary, additional stress for the markets, which further decreases the liquidity, increasing the magnitude of crazy movements. At the beginning of the European session, DAX is already TKO’ed breaking the neckline of the giant Head and Shoulders pattern (or triple top if you will) on a monthly chart. That breakout, technically, opens up a way towards the highs from 2007, when the Great Financial Crisis started.
S&P 500 looks no better, the price is aiming towards the last, crucial long-term trendline. The drop from 2007-2008 has around 900 points. The current has almost 600. To this up trendline, we have still around 300 points left. That would make sense, right? In my opinion, the freefall to the red line should be more or less undisturbed. Once we will reach that up trendline, traders will probably no longer be panicking and instead, they will start to look for discounts and bargains. ‘Buy when there is blood on the streets’ that is a stock traders’ motto, let’s not forget that!