Market Meltdown – March 2020
Financial markets have taken a breather from the mass selling over the last two weeks. Panic is setting in across the globe as the corona-virus continues to spread rapidly. Financial markets are now at a crossroads after wiping 13 months of stock growth out in just over one week.
China’s numbers have appeared to peak at 80,000 and taper off, however cases have been reported in over half of the world’s counties.
Italy’s total cases have exceeded 10,000, South Korea reaching 7500 and Iran 8000. France, Germany and Spain have all reported over 1500 cases with the US now topping 1000.
We are potentially looking at the beginning of multiple epicentres across the largest economies in the world.
Mainland China Coronavirus Infection Rate
Mainland China exploded from only 500 cases to 80,000 in the space of 30 days. Looking across the globe other countries are now following in the same path.
Italy has exploded from 470 cases on Feb 26th 2020 to 10,000 in the space of two weeks (11th March 2020). This is following a very similar growth phase as China even though China was accused of playing down the total number of cases. The same pattern is also being seen across Iran and South Korea.
The next two weeks will be crucial to see if the number of total cases increases the same as China but in 4-5 different locations at the same time. If this is the case, we could be looking at 60-80 thousand cases in Italy, South Korea & Iran (each). The US, France, Germany and Spain may also be approaching the 10,000 mark each in the next 1-2 weeks.
The damage the corona-virus has caused so far both economically and fatality wise could be the beginning if the virus isn’t contained soon. World leaders are stepping up their efforts in stabilising the financial markets. On Monday Trump suggested he was going to give a speech the following day on potential payroll tax cuts. However, President Trump was a no show for his Tuesday meeting. Markets initially rallied higher on his first comments but are now retreating lower as there was no follow through.
Australia is planning stimulus packages to small and medium size businesses to prevent unemployment. This will be a common theme across all economies now. The general public is in mass fear therefore no amount of money in the current environment will increase spending and travel to foreign countries. It is the fear of the virus which could bring the global economy to a standstill.
Let’s take a look at the charts: This could get a lot uglier before it gets better…
Firstly the ASX:
The ASX created a record high a fraction above the 2008 levels, this could have been a short squeeze in an attempt to take sellers out of the market. We have now erased all of 2019s stock market gains in one sharp decline. This comes after a 5-wave structure higher. We could now be setting up for an ABC corrective structure lower. Trends are made to be broken at some stage, currently the index is holding inside the channel.
The DOW JONES:
Currently the Dow Jones is being held up by the 200-day moving average on the weekly charts.
Previously this has been used as a support zone, however we are not in the same market conditions as 2015/16. A clear break of the 200-day moving average opens the door for a sizable drop.
This has been the longest bull run in history, therefore it will be no surprise if we do get an even larger drop in global equities. The US 10 year to 3-month bond yield curve has been signalling a downturn for a number of months now and the corona-virus could be the catalyst.
It is not when the yield curve inverts, but when the curve begins to accelerate higher when issues arise. The 10 year to 3 month has a 100% track record at predicting recessions. Therefore, this is why we are on the stance of potentially further downside before a recovery. The curve is now accreting higher very quickly…
We hope you all positioned yourselves defensively stock and investment wise when we sent our original article back in early FEB.
Let’s see how this pans out over the coming weeks, we will be ready to pounce along with our members on the trading floor!