Risk Jitters Remain Due to Coronavirus; Rallies May Be Short Opportunities

  • Risk-on has dominated over Asian and European sessions.
  • Rally running into potential resistance.

The risk markets have rallied over the last 2 trading sessions as traders try and bottom pick the strong sell off caused by the coronavirus uncertainty last week and particularly the sell down on Friday. This was supported by a good US ISM Manufacturing print that beat forecast, coming in at 50.9, a slight expansion m/m. However, the coronavirus is still causing disruptions to supply chains and contributing to market uncertainty. Cathay Pacific has confirmed that it will cut 90% of flights to China and Singapore has confirmed another six more cases, bringing the total to 24. On top of this, Alphabet’s results came in on the disappointing side. In this environment the rally may a dead-cat bounce.

GER30 Trades Into Potential Reaction Level

The above chart on the left is the GER30 daily. Price is below its black 20-day SMA and the RSI is on the bearish side of 50 (blue rectangle). This suggests that daily downside momentum may still be present. The chart on the right is the GER30 hourly. The market has rallied since 31 Jan but has now moved into relatively strong resistance area. The current level of 13,187 is the 76.4 Fibonacci retracement of the last impulse move down. Moreover the R2 pivot and price support turned resistance (red shaded horizontal) are at similar levels. Cumulatively this may prove to be a level target by short sellers. This may be confirmed if the green 5-hour EMA crosses below the orange 10-hour EMA and the stochastic turns bearish; these developments will be considered bearish.

SPX500 Moving Towards Tough Resitance

The above left shows the SPX500 daily. The index is trading below its black 20-day SMA and the RSI is under 50, suggesting weakness. If the SMA turns down this weakness may be beginning to manifest. The right chart shows the hourly timeframe. Here the SPX500 is heading towards the R2 pivot which overlaps with price resistance (red shaded horizontal). This is around the 3,290 level. A bearish cross in the EMAs and the stochastic in the short-tertm may indicate that short-sellers are targeting this level, taking advantage of the uncertainty caused by the coronavirus.

Gold Bulls Looking Towards The Precious Metal

The left chart shows the XAUUSD daily – the RSI is positive and suggests an undercurrent of bullishness. Price is above its black 20-day SMA but the SMA will need to turn up and head northwards if momentum is to increase. The right chart shows the XAUUSD hourly. The precious metal has pulled back to $1,565 which overlaps with  the S1 pivot as well as a price support level (green shaded horizontal). Gold bulls may find this level attractive; if the green 5-hour EMA cross above the orange 10-hour EMA and the stochastic turns positive, these will be considered as bullish developments.