The XJO yesterday came back to the devil’s number around 6,666 where the market spent a lot of time whipping sideways through 2019. This also completed a double top pattern which broke two days ago. This brought us 8% lower than the highs created early this year. A 10% correction is at 6,500 for our market, which we are going to test this morning with the futures closing 164 points lower. Our market tends to recover at least a half to three-quarters of a correction within a few weeks to a few months after we find the bottom. At this stage, we are just following fears from offshore with the known cases here in Australia very low.
US markets hammered lower overnight. The Dow closed 1190.95 points lower (-4.42%) and the S&P 500 was down 137.63 points (-4.42%). Asian markets were lower, except for Chinese markets, whilst European markets also hammered lower.
US markets are in free fall as investors run for the door all at once to try and hang onto as much of the 45% move that was achieved from early Jan 2019 to the highs of Feb 2020. The S&P500 has now fallen 12% in 6 trading sessions, which is very unprecedented considering the circumstances. Markets have seemed overvalued for a long period of time and at some point, they tend to correct. The US saw their first spread of the coronavirus internally which has spiked fears. Most sell-offs need a catalyst and this time that catalyst started with the coronavirus, I think what has lead to the US falling so extreme is that neither the government nor the FED have really said enough to make people feel safe in holding their positions. We saw two FED members downplay the virus saying they didn’t see any need to cut rates, when they should have ensured the market they would cut if needed. In the large pullbacks I have seen in the market we tend to retrace at least half to three-quarters of the move down within a few weeks to a few months after we find the bottom. The S&P500 has now broken the 50 – 100 and 200 day MA and the 10% correction target, so the next key levels of support are around 2,950 and 2,830.
XJO Implied Volatility closed at 20.178. The US volatility was up 29.62% and closed at 39.16%.
US oil continues to free fall.
Gold was flat and is holding near highs.
Iron ore is finally starting to fall a little but nowhere as much as other commodities at this stage.
The Aussie dollar may have found some support.
It is important to note that the virus in China seems to be under control if you believe the official numbers. The new cases have slowed and the recovered are rising exponentially every day. So at this stage we are seeing a case of ‘sell the rumor’ in world markets, so keep an eye on the new cases in other countries like the US and Italy. If it isn’t as bad as people are expecting we will see a ‘buy the fact’ scenario. If you have been caught out with some bullish trades, you need to asses if you are still within range of a market rebound and that you have enough time in the trade if you are trading options. Once the market bottoms you can look to adjust your trades to capture the move back up again, if you need help with this, don’t hesitate to give one of our advisors a call.