Our XJO index had the biggest gain in its history yesterday, rising seven percent by the close. It rose above the downtrend line that has formed since the start of the COVID-19 selling, driven higher by news of the Governments wage subsidy program, which will help businesses that have seen a drop in revenue pay staff. Our XJO looks set to test some key resistance around 5,300 today and if that breaks, 5,500 would be the next resistance target to the upside. To the downside, there is some support around 5,000, and 4,750 after that.
US stocks rose strongly overnight, their fourth rise in five days, although oil continued to fall. The Dow closed 690.7 points higher (3.19%) and the S&P 500 was up 85.18 points (3.35%). European markets closed higher as well, but many Asian markets finished lower.
US markets rose despite dire predictions from the Trump administration that COVID-19 could lead to 100,000-200,000 US deaths. However, there were bright spots, with Johnson & Johnson announcing a vaccine candidate, as well as Abbott Laboratories announcing a five-minute testing kit. On the flip side, crude continued its fall – which is seen as negative for markets. Although there has been some optimism in the past few trading sessions, there is no guarantee the selling is over. Technically the S&P 500 index rose strongly, but failed to exceed the highs of Thursday. There appears to be some resistance forming around 2,650; if 2,650 breaks, the next target is some potential resistance around 2,750. To the downside, 2,500 may act as support.
XJO Implied Volatility was up 5.23% and closed at 41.938%. The US volatility fell 14.82% and closed at 57.08%.
US oil dropped strongly again, prices remain very weak.
Gold dropped slightly, prices in Australian dollar terms (given the fall in the AUD) remain extremely strong.
Iron ore dropped again. Prices remain strong considering the economic situation, but they have come off their highs
The Aussie dollar was flat against the US dollar overnight, prices remain fairly weak but have recovered a fair bit from the lows.
Equity markets have been enjoying some strength over the past few trading sessions, with gains seen in much of the world. These gains are likely being driven by immense fiscal stimulus measures announced by governments around the world, as well as the actions of the Federal Reserve to sure up debt markets. These measures are great for giving markets confidence, and they will help to mitigate the economic effects of the virus. However, the virus is not over and it is difficult to predict where it will end. The longer the virus continues, the more people it infects, and the longer things remain shut down; the more likely we will resume selling.