Markets panic as virus spreads

Our XJO fell straight to a support level around 6,980 yesterday – breaking through the short-term uptrend line that had formed since the start of the year. The XJO now looks set to continue falling, with the futures indicating a move back towards 6,800. I wouldn’t be surprised to see a bit more selling, to push our index down to the next key support around 6,775 index points. With fear driven falls such as we are currently experiencing, it is hard to say where selling might end. However, the 200-day moving average around 6,700 and the 10 percent correction level just under 6500 are potential targets. 6500 is also a key longer term support level, so if the selling continues that may be the level to watch. It is worth stressing that given how bullish markets have been over the past 12 months, and with the RBA now expected to cut interest rates again in April – watch for signs of a potential turn around.

US markets plummeted, experiencing their largest one-day fall in almost two years as concerns around the coronavirus forced markets lower. The Dow closed 1031.61 points lower (-3.56%) and the S&P 500 was down 111.85 points (-3.35%). Asian and European markets closed significantly lower as well.

It was a bit of a bloodbath for markets overnight, with multiple percentage falls in just about every major bourse. In the US, selling was perhaps compounded by the feeling that some investors misjudged the threat to the virus initially – making them more open to worst case scenarios now that the virus threat has not subsided. Technically the S&P 500 fell back to a key level at 3,220 – wiping out all its gains for the year. There is some support around this level, as the index tracked along this level as support for much of December. If this level breaks – and with things looking bearish it may break as early as tonight – 3,150 would be the next target. If the 3,150 breaks – we could see the S&P 500 head all the way back to the key 3,000 level – which would be just beyond the 10% correction range. However, it is worth keeping in mind that markets have been extremely bullish for the past 12 months, so a turn-around should not be discounted.

XJO Implied Volatility was up 20.79% and closed at 15.996%. The US volatility was up 37.83% and closed at 25.03%.

US oil slammed lower overnight.

Gold launched higher as investors searched for safe havens, gold is back towards GFC level highs.

Iron ore was mixed, but actually was fairly flat – despite the concerns around viral shutdown – iron ore is holding up extremely well.

The Aussie dollar continued its fall against US dollar – our dollar is around decade lows.

It was not a good day for shareholders, with every major share market around the world being stung by the coronavirus fears. When selling like this occurs – it can be very difficult to determine when it might end. Fundamentally – there could definitely be more selling in store as the Chinese economy is operating well under capacity, with travel restrictions also reducing economic activity. However, markets have been able to shake off weakening economic fundamentals recently, so they may recover from this selling sooner than they should. As mentioned previously – our market is looking towards a likely RBA rate cut in April, which in addition to a weakening Australian dollar, could help to support our market one the worst of the selling is over.