Markets Pause For Breath After Conoravirus Sell-Off

Okay, very good morning. It's Tuesday, 25th of February. I hope everyone is still alive after yesterday's price action. And as you can see to the side of me, then yesterday actually turning out to be one of the biggest one-day point drops we've had in the past 3 years, and This is looking, you know, specifically chosen here, this graphic of the last 3 years, because it puts into context a little bit more of the kind of acceleration that we had, some volatility at the beginning of 2018, kind of post the Trump era. So it's kind of more relevant in that sense, I think. So here, a loss of 1,031 points on the Dow, uh, so percentage-wise just over 3.5%. The S&P down 3.35%. The NASDAQ comp down 3.71%. So significant losses across the board. Overnight in Asia, Japan, remember, was shut yesterday, so they've played a bit of catch-up, down a similar margin, albeit off its worst levels. And yeah, much of this was what we were talking about yesterday, the kind of renewed fear in the market about the potential moving toward a full-blown pandemic on the fact that the virus is spreading in other Far Eastern nations like South Korea, Japan, but also mainland Europe in the form of Italy in particular, that seemingly acted as a real catalyst for price yesterday. This was the scoreboard, if you like, of the S&P 500. As you can see, it's kind of a sea of red. And this is quite common then when there is just a singular overall macro theme like that. So it's not like an isolated piece of information. It's a broader macroeconomic scenario. And so all sectors suffer in that type of situation. Hence the reason why those major 3 indices really are roughly down the same margin. If anything, some of the more cyclical tech-oriented stocks which have really outperformed are getting hit perhaps slightly harder. Your kind of tech giants— Apple, Amazon, Microsoft— all down in excess of 4% at the close. You will see though there is one little spot of green there on the board. It's probably the one singular shining beacon of green, and that is Gilead Sciences. And the reason for that was yesterday the World Health Organization saying that the company's drug, uh, remdesivir, is showing signs that it may be able to help treat coronavirus. And so that's the one kind of singular bright spot on what otherwise was a complete red day. This is what it looked like in context as well, in terms of some of the year-to-date price action. So we have had other short episodes, of course, when we've had, say, bouts of interest on the coronavirus, when certain numbers were getting adjusted for methodology purposes and so on. However, this far in excess, exceeding that price movement. A few things then on the charts, and I think a day like today it's really important to listen to Sam when he comes on because from a technical perspective now, obviously there's a possibility that we could see a bit of a bounce in prices. If you, if you're looking at the world that way, that already has been occurring to some degree. US stock futures already up quite, quite significantly, obviously in contrast of we've got to put it in context of the big sell-off yesterday. So a bounce of over 100 points already in the NASDAQ future. The Dow's already up about 200, but obviously, granted, we fell over 1,000 yesterday. So what normally is quite common from a statistical point of view, it's uncommon for the market to be down 1,000-point clips again and again and again. In fact, it's incredibly rare. And the only real time that I can remember in my career of that happening was right in the midst of the global financial crisis. Kind of going back to the '08-'09 era when there was, you know, complete fear in the market at that point, and it was just all-out selling. I don't really anticipate that in this scenario. And, you know, whether or not we, we do see further downward moves, it's— surely it's a possibility. But I guess from my point of view, to listen to Sam is about, okay, if we did bounce back up again where would be key areas where the market might respond. And, you know, it's just cycling through a couple of charts myself this morning, and I won't go into too much detail as to not pollute what Sam is going to say. But here's the S&P 500, and you can see the pickup that we've had during the Asia-Pacific session as the kind of dust to settle on yesterday's move. But this was the S&P from yesterday. A few people were looking at that trend line going back from the year-to-date price activity, which the move that we had initially going back to the Iranian situation when the Middle Eastern tensions were flaring, if you'll remember, right at the beginning of the year. Then we had the last little dip at the end of January. We did break through there, but we're back above there fairly comfortably at the moment now. And then looking at the Dow yesterday, looking at this on kind of two bases. One, you had that double bottom from the year-to-date price activity, and that was quite a key target yesterday. When that was breaking, oil was subsequently almost in synchronized fashion breaking also a respective support point. And that was quite good for a timing on a short if you were part of that trade yesterday. But again, we're back above there at the moment. And I was looking at a slightly longer timeframe here at the Dow because it helps put into contact— contrast some of that significant key area which we were trading yesterday. Because not only was that that double bottom year to date, you can see it was an area of restriction to some of the upside price action resistance that we had towards the back end of November of last year. So quite a key area now where the market's trading. And yesterday, uh, we came down— these are all areas which we've marked before, uh, the support point here coming in from, again, some of the previous highs and lows that have acted on this move up to record territory that we've had over the last several months. Interestingly, the day yesterday, the only days that have topped that in terms of a one-day period of volatility is— you've got to go back, let me just shift the chart over so you can see it. This was that rectangle here, that was the price activity if you remember in 2017, and then that was when the corporation tax cut came through and, you know, the earnings profit guidance going forward at that point in time, you remember, was almost vertical, and equity valuations were soaring at that point. And then all of a sudden the market collapsed as signs were that the Fed were going to have to start speeding up their tightening of policy. And that collapse that we had there in February of 2018 was actually slightly more violent and the only time it's been a little bit more consistent on back-to-back days than what we've had today. So yeah, a bit of a recovery. The other thing then that's also bouncing as that move is just dying off a little bit. There was quite a nice technical rejection of an area in dollar-yen here as well on the longer-term charts. I mean, this is a multi-month area of resistance going back to the beginning of 2019, that being respected and dropping back down through some of the price action that we've had throughout the last few sessions as well. A couple of things then to, to point out before I really move on. And this is more, um, me talking about a couple of concepts. And, and point 1 is, from a more practical point of view, what has got to happen in order for the market to reignite another down day? So what do you now as a trader need to look forward to in order for the market, now having repriced itself to some degree in regards to the new reality of the situations—equities have come down and so on—is, well, what next? And the thing I'd say I'd be looking out for are the following. One is, if we quickly switch over to the coronavirus kind of live board, you can see here total confirmed cases 80,000, deaths at 2,700. To be honest, I think these numbers are not particularly relevant in terms of a trading decision. What, what graph, if you like, is more relevant in the here and now is this one. This is looking at the tracking of actual numbers of confirmed cases when mapping, and it's the key one that I'm looking at, is this green one. Sorry, the— excuse me— the, the yellow one. And I know it looks a little bit small here, looks quite dwarfed, but if you were to zoom into that, actually that's picked up quite substantially, and that's the the other locations outside of this one, which is the mainland China. Obviously mainland China needs to be watched as they try to open up their factories again and get their activity back in order to counteract the, the implications in their economy. But it's the yellow line, which is then Italy, which is— if we click on here— is the key one that, that people have been watching. And then subsequently, given its geographic location What about then the sensitivity to other neighboring and close proximity nations? So here, obviously, as we— the two that already have confirmed cases of a slightly higher number would be Germany and France. Uh, neighboring then you've got Switzerland, uh, and then Austria as well on the northeastern side of the country. So any further breakouts in these areas the Italian numbers to really grow, I think there would be the things which could create further interest from the market. But for the moment, it needs to be another rapid increase in those numbers, and it needs to be in new areas. What we need, because the World Health Organization have not yet classified this as a pandemic— a pandemic generally by definition means it needs to be growing numbers rapidly in multiple different geographic locations worldwide. And so what we need to see is an explosion like in Italy, in the likes of Germany, France, perhaps England as well, and then you might start to see a secondary further reaction into what we saw yesterday. So at the moment, I do feel relatively calm about what has happened. I don't think that it really shifts things too much. If anything, one thing that you probably saw yesterday is almost capitulation when the market starts to go into freefall. People were just chasing the moves. There were some technical good points to hit the market to get short again, and that kind of forced the sellers to, to kind of chase the momentum a little bit. And so the move can be somewhat overdone in that respect. Um, the one asset class that, that, that did originally rise but then came down quite quickly as we went through the the afternoon was gold, and I'd imagine there'll be quite a few traders out there that perhaps got a little bit hurt on the back of, uh, that pullback. Because if you look here, we got quite close yesterday at the peak, and around midday up towards the 1700 marker, which was that previous area of highs that we had towards the beginning of 2013. So we're talking about multi-year highs here. From technical levels of, of resistance. But, you know, if you think about the ferocity of which gold has, has just soared over the last few days, you know, it's kind of like looking at that S&P in the late 2017 era. You know, it has that, that air of people chasing the market higher, and so inevitably when the market kind of pops in the short term, it comes down quite dramatically. So That doesn't mean that I still wouldn't be a buyer of gold, but for me, the, the gold price has got to probably get down to around a much lower level to feel much more assured about that being an area to get in. If you look at this area here, perhaps the strategy could then be for a medium-term position, picking up an entry point, trying to get in and around that area of consolidation that we had as support and resistance going back towards the mid part of, um, here of the month, and then using the 1600 as your marker to have your kind of stop placed with some of those previous highs, looking for then for an eventual move. And again, this is over the medium term, not the intraday, to, to move back higher, taking your relevant clips off various points kind of here and then here and then just scaling out of the position as the market continues to move back up. So I still like the, the long gold positioning, but as per anything asset, when it rises so violently like it had done, I think perhaps just a little bit overextension, some profit taking in the short term. It comes back, but that doesn't change the overall feeling about the direction of that asset perhaps over the next couple of months in general. The, the other final point that I wanted to stress here was for any new traders, today potentially is a very tricky day to trade because your mindset is almost polluted by the notion of what happened yesterday. And whether it's a case of you felt like you missed out yesterday, or you got the direction right but the execution wrong because of the volatility, might have been quite hard to get your execution on because that requires a lot of work. It's really important to reanalyze today, objectively review, and then look to trade accordingly. And you know, this was kind of a word of a bit of advice that I tweeted out my way into work this morning because I've seen a lot of traders lose money quite easily on a day like today where they come in almost blinkered by yesterday. Today is a brand new day, so fresh eyes, a fresh mentality, and reanalyze, and don't let yesterday's moves cloud today's judgment is my kind of phrase for today. The final few things that I just wanted to show, share with you, as I said, there's a couple of good graphics that I thought might be relevant, then I'll hand you over to Sam, was this. Perhaps this one explains a little bit about what I was talking about from the trigger point of what to look out for going forward if things are to get more serious and therefore to add continuity to yesterday's risk-off trade. And that's that red line there, as you can see. We've had that Hubei Province little spike as we've gone through some number revisions, of course. But if you actually look at the red line, that's the one that's been the most concerned to markets. And I guess it's about the future trajectory of that line which will determine whether or not markets will need to, to take this move any further. The one perhaps, um, sign of positivity in all this— this was looking at basically shipping coming out of China, and this was looking at the amount of million metric tons per day, and it was looking at outbound traffic. So this was this idea then of looking at alternative data as a means to try and look at how China— how quickly can they come back to some normalization of their production activity in order to counteract the bottlenecks that we've seen evident in other economic data globally. And as you can see here, they've managed to ramp up quite radically the amount of shipping more recently. And yesterday we were looking at traffic congestion live tracking charts to have a look in China in major areas like Shanghai and Beijing, and there was quite a distinct amount of movement of traffic once again for the first time really since the lockdown had commenced across China. So these could be seen as more positive signs going forward. The final chart is, is oil, and one thing for oil that I just wanted to comment was obviously yesterday was some downside movement was being seen. We did see I mean, I was looking at this with a couple of the guys from our sessions with another group that I deal with, and it was really that low that was coming in. And, you know, as we were going into the really the US crossover, there was a bit of an opportunity there where the market saw some hesitation right around that area of the previous low that we printed back on the 18th. And it was really nice with the timing of cross-asset movement when equities were quite precarious support levels. And when they started to threaten oil, then was quite a nice trigger point for that equity move in terms of the domino effect. And then we, we pushed down lower. Now oil has bounced. Interestingly, we remain well within that, that rectangle we've had on a while on this longer-dated daily continuation of oil. And some of the OPEC+ rhetoric has come out once again. Obviously what you'll tend to see is The amount of comments that OPEC+ make, particularly Saudi Arabia, goes hand in hand with exactly where the price of oil is trading. The more violently it starts to sell off, the more frequent the comments become. And so yesterday you started to see the reemergence of the discussion about are they going to have to make some kind of deal, an early agreement, a cut to production. But at the moment, remember, we've only got a week to go or so until their official meeting. I wouldn't be looking out for too much, not unless oil gets pressured and we start to see more dramatic movement. And for that to happen, we've really got to get through that lower bound of that kind of double bottom of the February price action to start opening up a much deeper move here on the daily charts, uh, south toward the mid-40 levels. But I don't really see that happening today, to be quite honest. But still something to be technically aware of. All right, let me hand you over to Sam, uh, and my final words will be for the calendar for today. What have we got? Well, it's a fairly quiet morning, so I guess just a little bit of patience. Just, just reset your mentality, I'd say. Restore some rationale and calmness to your decision-making and then go from there. Do listen up though closely to Sam's level picking. So it's going to be potentially quite key today given the, the scope of volatility might be on any pullbacks quite large. And then in the US session, US consumer confidence main kind of highlight, a couple of Fed speakers to be aware of as well as US auction, 2-year note. You've got some UK supply also coming to market. All right, that is it. I'll hand you over to Sam and I wish you a good day ahead. Thanks very much, guys.

Yeah, hi guys, good morning. I hope, uh, we've all had a good evening. We'll start off, uh, I guess with, with US equities and I'm going to bring in the— well, I've got the NASDAQ here, but we'll change it over to the S&P. See, decent days to the downside, big moves. I think on, on days like this, it's always a case of just taking it easy. Don't feel again like you need to be in a trade. Draw up your analysis. I mean, first things first, if you come and you've got lines all over your chart, just get rid of everything, start again. You know, what are the lines in the sand that you need to be aware of? Um, obviously the— to the downside, you've got those lows from yesterday, double bottom. That's going to be potentially a magnet if we do start to push lower. Um, if we just put this on the 15-minute here, we're not really doing too much. We're just coming down to what was the, the low of the early morning trade. So here potentially is your first level, uh, where if you get below, you might see a bit of a further drift down. And with all of these trades, you want to think about, well, if it does go below here, is there room for it to go a bit more? So I'll be saying, well, if we break 45, we could be looking to, to drift down to sort of 41, then 37, and then, you know, there's a bigger move below that where it could go to, to 28. To the upside, well, we're in a bit of a range, aren't we? Just from early hours this morning, those highs there, you could also draw a bit of a lineup around 3260. We struggled to really clear that in the post-cash open as well. So pretty big level above that, you'd feel pretty confident that we can actually get a faster move to the upside. Um, and that would be really the same picture here on both the Dow. You just on its low of that morning, and the NASDAQ as well. So yeah, that's how I would be looking at it. I don't really have an opinion on, on whether I think we're going to test the low or it's an opportunity to buy the dip right now, uh, because we're bang in the middle of, of the range of, of the, the last— how many hours have gone? 8, 9 hours. So I'm not really too interested about making a call. However, if we do get below these lows, then we could start getting a bit more interested, say even the NASDAQ down to, to 9,100, and then those lows where you've got a triple bottom as well. And like the Dow, if we break that area here and the volume starts coming in, the DAX gets excited as well. We break this point, maybe, you know, aggressively, or on the retest, you're looking to sort of unwind that towards 28,000. On the flip side, if it gets above those highs, then you've got to be aware of, uh, the resistance point around 28,300. As well. Gold, pretty interesting yesterday, obviously spiking to the upside in very early trade on Sunday evening, only to then come back down with a vengeance around 7 PM. And we're just starting to see a bit of a bid come in here. And I quite like— I was just looking at this just in the other room, this trend line from some of those highs yesterday. It's not by all means perfect, you can start to see here you could argue 1, 2, 3 real key tests of that coming up to the 4th now. As a bit of a guide, above there you're happy to maybe look for some longs. I know you've got a bit of resistance around 52.5, so probably more of an area here if we can get above there. Highs of the day, lows of yesterday before that push down into sort of the evening UK time around 7:15, uh, is how I would be looking at that to, to play, to pan out. The low that we got Uh, you can see it was a nice bit of support that we had back on Friday. Um, and really just, just looking at this, you know, could argue worth having 1641.7 on there as well. But, you know, these would be the points where I'd be half interested in getting into a trade. And absolutely, it could spend periods of hours in between that where I'm not interested in trading. 1, 2, 3, 4, 5 15-minute candles just from there to there, where it's just, you know, gradually pushed higher. And now I've got, uh, $16.41 to $52, over $10, where I'm not really interested what it does. If it goes above or below, then I'll take action. But other than that, just, you know, no harm in sitting on that sideline. Oil, similar actually. You know, we can just see a little push lower as European Open starts, and maybe some of this risk comes back in. But we haven't broken out the, the bottom part of that range really. You can see just below the pivot, 51.50. Pretty key level, albeit, you know, chopped through in late trade yesterday. But look at all of yesterday from 9 AM, it was such a good line in the sand, really was. So if you're looking at an oil trade, albeit, are you really interested at 8:30 in the morning? 51.40 is a good level as you're going to get for just a bit of a guide or potential guide that, you know, below there we might start drifting down to 51.20. and then it gets exciting, you know, you start thinking about these lows coming in, uh, but if that holds, then, you know, we, we can absolutely push higher. You've got some intraday support that we just broke through here, 5164. It's a bit of a line in the sand where the bulls are saying, you know, if I've gone long on these lows, I want that to break, and, and can get excited with all of these trades, uh, that gap to lower. Uh, you obviously just got to be aware, you know, if you are short, that the momentum could well be on these breaks, these highs, to really look to fill those. I don't think we fill any gap today, but, um, it's just something just to bear in mind perhaps for later on. Currencies, we've got the euro just pushing to the upside this morning. Bit of a base, you could argue, is the pivot. Good level. You can see from where we gap lower, found resistance, broke through, came back down. What a level. What a bit of a, you know, good guide that is for the bulls and the bears. Below the pivot, then you you know, it's the, the lower part of that range over the last couple of trading sessions. And we look down towards the S1 again, uh, if we can keep pushing up here, you know, the, the highs from, from yesterday don't seem a million miles away. No real trend line over the last couple of days that I like the, the look of, to be honest. I think just putting this on that 15-minute chart, this resistance level we, we've sort of broken through here helps with a bit of dollar weakness is, is not a bad one as well. I think if you are long, the stop in this case below 108.71 is, is good enough. You know, if it comes back below there, it's just likely to get relatively messy. Not far from its high of the day, as was pound when I was just looking earlier. You can see that's knocking on the door there, a similar kind of trade to that euro and breaking those previous highs of the, the, well, the early morning session. 129.50 would be where you want that stop below. Got quite a bit of resistance just up here, uh, from Friday. You can see we— where we just started to push lower into that close. So R1, obviously great place to have taken profit. And then you're really looking at, uh, the high from Friday, which is— I'm going to call more of a zone because you can see we found some lows here on the 18th, we broke through then on the 19th, and really it's now 129.80 to 129. Uh, well, 90 as well. So quite a key zone there for, for the pound to the upside. Just putting this now on the 15-minute, you can see a couple of these markets that have potentially recovered a touch after gapping down. You know, they're going to start to have something like this where they trend up and you get these trend lines on and breaks of these levels, albeit could be today, could be down the line, uh, could then be what really gets us going to the downside. And here it might be that the pound does it later on. It also breaks its previous high, that it also breaks its trend line, and that's when you get a big, bigger move. I think it's unwise to go into the day with a bias of saying, you know, equities are going to be bought, we're buying the dip, it's going to fill that gap, it's going to be the trade that, you know, makes my month. You know, trade what you see, not necessarily what you think. That would be my Yeah, well, yeah, Anthony Cheung just saying Twitter's way too biased about buying the dip, and I absolutely agree with that. You know, it's— I've recently actually deleted a lot of people on Twitter that were incredibly bearish, and my trading improved massively from doing that. But yeah, absolutely, you know, especially with Trump's tweet last night where he's talking about the stock market being incredible and that coronavirus is under under control. Uh, just having a look here, actually a tweet I saw from Odd Stats who were fantastic whenever the market, S&P, was moving. Uh, they would tweet. They haven't tweeted since September, but this is one that was just going doing the rounds last night, uh, just talking about, uh, a 3% drop on, on a Monday after setting a new all-time high in the past 10 days. And there's been 5 times— 1, 2, 3, 6 times this has happened. 3 turned into bear markets. 2 turned into corrections, 1 into nothing. So just, uh, you know, be wary of this. It's not an opportunity to click buy right now. Let the market tell you when that is the case. And if I was looking at the DAX, which we are right now, you know, I'd be saying, well, I'd happily have been short on the break of that, really targeting probably literally this low here in that gap in 13,000. So if I wanted to get long, really, I'd rather be late to the party here and maybe just attack the, you know, if we break the high of the day. Why would I want to, you know, try get, uh, the, you know, buy the, the low here, try to, to pick that bottom? It's, uh, it wouldn't really be too beneficial, I would say, unless, uh, you know, a headline comes out to really look for that. As usual though, any questions, please, uh, do, do let us know. My advice would be simply to take your time, take your time. I don't feel like you need to be be in a trade, identify your levels. Where are they? If they don't come in, no drama. Hope you all have a good trading day, and I'll catch you all later on.