Another down week on the markets, and since coronavirus is now spreading in Europe in full force, spreading in US... the question remains of negative effects due to interrupted supply chains, global slowdown... Fed emergency rate cut did not work, and there is a history of those emergency cuts - not working. Markets expects further rate cutting on next FOMC Statement, on March 18th.
Next week we will have following scheduled data releases:
Except ECB Event on Thursday, with good probability of ECB intervention in some way, there is nothing much that can move markets.
Important thing FOR ALL news releases - only thing that matters is not the news itself, does it seems bullish or bearish to YOU, the thing that matters is MARKET REACTION ON IT.
Moving to charts.
Chart #1 - SPX Cash Index Daily
Gap down on Friday, and a late rally - on some jawboning from FED officials. Monday open will be important, since there is a good chance of market retesting the Support level 2855 which is Oct 2019 / Feb 28 2020 lows. Price is below DMA200 and if we get a move below 2855, next Support area is around 2715-2745 where there are:
1) 61.8 fib retrace of entire up move from Dec 2018 low to the ATH
2) PA based Support zone
3) -20% from ATH level
Below this - Dec 2018 low.
Intermarket divergence among US indices lasting for a very long time. NDX the strongest, RUT the weakest, as we can see on charts below.
Chart #2 - NDX Daily
NDX above DMA200 and above October 2019 lows, did not test that at all.
Ask yourself - when downside is over, which stocks, from what index - will rebound first.
Chart #3 - RUT Daily
Small cap index Russell 2000 never confirmed the rally of big brothers SPX/NDX, did not made new ATHs, and on Friday even dipped below 1450. HOLDING below 1450 and it could be the first one to target Dec 2018 low.
Chart #4 - VIX Weekly
VIX posted levels higher than previous spike highs. Last week most of the money was made on the short side, and high VIX favours selling rips.
Note the IG Markets Weekend quotes, since markets will likely open with the gap down.
After such a big and fast drop, it is a good idea to remind yourself of previous similar periods, and how long it took for the markets to stabilize. Check this tweet from Chris Ciovacco to find out.
Chart #5 - DAX Weekly
Use Weekly chart to better see the size of previous down swings.
DAX posted lower lows and:
1) important Support at 11,266 is near
2) Chanell Support 11,000-11,200
3) -20% from ATH is on 11,036 on Cash Index and on 11,059 on Futures
Chart #6 - FDAX Daily
Lower lows on Daily chart.
Levels of support and -20% from ATH with circles.
Note the Daily ATR and ADJUST your trading to it.
Final thoughts
IF SPX moves below 2855, weaker markets like German DAX will move lower also.
Dec 2018 lows on SPX are 32% away from ATH. Coronavirus in spreading phase in Europe and US, seems like slowing down in China. That means at least 2 more weeks of being a big issue in the rest of the world, with long term negative effects.
However, since nothing goes up OR down in the straight line, there will be good opportunities on both sides. Possible new range and consolidation, before the next directional move.
We will continue to use our daily bias to determine from which side the risk is bigger, and trade this day by day.
In short term trading it is very important to properly understand context heading into every day, to know from which side wind is blowing - who has the short term control, and which side will be forced to liquidate IF and WHEN market hold above or below a certain level. What is the level of volatility, what can we expect from any particular day, what market already done in premarket session, what possible setups can be available, and so on... the things that we constantly learn in the DAILY DOSE OF DAX.
Cheers, StrayDog