As the new week begins, there is not much appetite for risk taking following the big falls at the back end of last week with equities and oil prices down and gold up. The markets had bounced sharply in April as the spread of coronavirus infections slowed down which raised optimism surrounding the gradual reopening of economies, while the big stimulus measures announced by major central banks and governments also played a big part. However, at the end of last week things turned sour again as fresh macro data and company outlook guidance served as a reminder that the economic damage from Covid-19 is only just beginning to show. On top of this, Donald Trump continually bashed China and threatened new retaliatory measures over the coronavirus outbreak. Adding to the rhetoric, the US Secretary of State Mike Pompeo has reiterated claims linking the virus outbreak to a lab in Wuhan, China. The US government has so far provided no evidence to back their claims. This has provided fresh concerns in the ongoing trade war between the world’s largest economies, adding to the already downbeat sentiment.
So, after a long weekend for most of Europe, mainland indices were down about 3% this morning following Friday’s big falls in the UK and US. The FTSE was down only marginally as it had already suffered big falls at the end of last week. However, US index futures pointed to about another >1% drop at the open.
Things are therefore turning a little ugly again and the situation could worsen if we see the breakdown of a few key support levels, which could then pave the way for fresh technical selling. Indeed, the weekly candles that were posted by the major indices last week do not paint a rosy technical picture for the bulls. The so-called shooting star candle is a bearish formation as it shows how after being in full control the bulls lost it, resulting in a close roughly where the week had started. Thus, if the major indices such as the S&P, below, hold beneath their lows from last week then the bears may start appearing again in large numbers amid a fundamental backdrop that does not look favourable for the bulls. For confirmation, the S&P will need to break its recent low around 2727, as technically the higher lows that were made since the March nadir are still intact. Therefore, we could see a bounce from around current levels before the selling potentially resumes later in the day/week.
