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Looking to the Futures

Investors React to the Coronavirus

Markets opened this week in the red as concerns around the Coronavirus continue to grow. The United States confirmed the fifth case of the virus domestically and as of last Friday, two cases were reported in France. There has been over 2,700 cases internationally with 80 deaths. So far 98% of all cases have been reported in China.

The Shanghai and Shenzhen markets closed on Friday for the Lunar New Year however authorities have decided to extend the market closure by an additional three days. Markets are expected to re-open in China next Monday with potential for further delays. Analysts speculate that the market closures in Asia may have inflated the downside pressure on US markets.

Illness related market closures in China are not unprecedented. In 2003, authorities extended the May Day holiday by four days due to the SARS outbreak.

On January 23rd the Shanghai Index benchmark was down 2.8%, signifying the worst day of trading going into the Lunar New Year break since its inception in 1991.

Economic Data released last Friday helped fuel the fire on Monday’s open. Manufacturing PMI fell -0.7 missing the expectations of +0.1.

December new home sales also missed expectations, reporting a decrease of -0.4% to 694,000 against expectations of +1.5%.

Boeing’s struggles continue after reports of another plane crash on Monday in Afghanistan. A Boeing 737 passenger plane is reported to have crashed 100 miles outside of the capital Kabul with 83 passengers on board.

Front month VIX futures contracts, (VXG20), spiked nearly 10% over the weekend as markets experienced a significant pull back.

On a positive note the equity market has experienced a fairly positive earnings season thus far. The after effects of the phase one trade deal between China and the United States and the USMCA agreement should still be considered in the market outlook. Today’s Consumer Confidence data will be important to watch to help gauge the overall sentiment of the US economy.

Technicals:

Trading gapped down to start the week on the E Mini S&P 500 March 2020 contract (ESH20). The contract tested the 20-Day Simple Moving Average yesterday and was not able to close above that 20-Day SMA Level which could provide a potential new level of resistance.

The contract is still trading well above the 50 and 200 day Simple Moving Average but showed vulnerability as the news of the Coronavirus sparked significant selling pressure.

Trading Centrals Daily Technical Analysis, found on Street Smart Central, has new support levels at 3233 and 3215 with resistance levels at 3270 and 3282.

Last week’s Commitment of Traders report showed Non-Commercial and Non-Reportable traders have decreased their long position by 11,386 contracts but were still net long 3,015 contracts.

14-Day Relative Strength Index numbers have decreased significantly since last week. Last Thursday 14-Day RSI levels reached above 65 but, as of the time this article was written, the 14-Day RSI has dropped down to 45. This dramatic swing shows just how significant the selling pressure has been to start the week.

 

Contract Specs:

E Mini S&P 500 March 2020 (ESH20)

Trading Calendar:

 

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