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Turbulent Markets Get Ready For Major News Events

The move away from risk picked up even more momentum on Wednesday. Oil recorded its largest intra-day price fall for two months and the flagship global equity index, the S&P 500, posted its biggest one-day fall since June.

Monday’s and Tuesday’s markets already had a bearish tone. The pick up in pace towards the downside represents a significant shift in sentiment.

The correction is attributed to COVID-19 infection rates. In some major economies, the rate of infection is reaching alarming levels.

  • In the UK – infection rates are close to 100,000 people per day – the number of people infected is now doubling every nine days
  • France declares a national lockdown starting Friday – Daily deaths from COVID at the highest level since April

 

Source: ECDC

Traders looking to step in at these levels do so with some significant announcements due out within the next 24 hours.

US GDP Data

The release of the Q3 US GDP numbers would be a major event at any time. With markets rocking, the announcement due on Thursday has even greater significance.

For more than a decade, good or bad news has led to a market rally. The win-win nature of the situation being down to the willingness of US authorities to meet any bad news with fiscal and monetary stimulus measures. This time it could be different.

The fear gripping the markets relates to the likelihood of Democrat nominee Joe Biden winning next week’s presidential election. If that happens, the ‘lame-duck’ period of outgoing president Donald Trump would reduce the chances of fiscal measures being agreed.

Oil

WTI has traded above the $40 per barrel level for some time. The recent slide in prices is causing some to have flashbacks to the times earlier in the year when it traded below $20 p/b.

 

Source: IG

Trading in the $36.50 – $37.80 area on Wednesday morning, WTI crude looks set to test the September low at $36.40. Price is currently below the weekly and monthly SMA’s, marking a potential for a significant move lower if there is a daily close below $36.40.

Is it time to buy the dips?

The argument for engaging in some bottom-fishing is based on studying price charts over a longer time-frame. The FTSE 100 index is now trading closer to the March lows than the June highs.

Source: IG

The FTSE 100 index was on Wednesday printing at some price levels way below the (March to June) 50% Fibonacci retracement. It hasn’t yet tested the 61.8% level which is at 5442 but with market mood as it is that can’t be discounted.

There is a considerable divergence between the different equity markets. The US indices have held up much better than their European counterparts.

The risk associated with going long at these levels is highlighted by the potential double-top pattern forming in the S&P 500. A lot of attention will be given to price action near the 3209 support level. That low from September is now looking to be a crucial price point.

Source: IG

The March low 23.6% Fib is at a slightly higher price level of 3257.

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