Despite advancing on the open, the Dax was unable to maintain any positivity and dropped back into negative territory. Whilst today’s losses are minimal compared to yesterday’s 4% bloodbath, at 0.8% they are still significant.
Coronavirus fears still dominate with the number of cases in Italy increasing fast. At least 283 cases in Italy are confirmed and 5 deaths. Another 5 countries in Europe confirmed an increase in cases. Whilst the WHO aren’t declaring a pandemic, the broad sensation in the market is that we are on the cusp of one.
No end in sight
Whilst markets in Asia have been trending lower over recent weeks, US and Dax were trading at record highs just last week. Between yesterday and today traders are starting to price in a direct hit to the eurozone economy. Traders are no longer viewing this as solely an Asia issue and are attempting to gauge the impact that the virus outbreak could have economies is Europe.
The problem is that it is very difficult to gauge the potential economic impact of coronavirus right now, given that it is impossible to tell whether this will be a prolonged outbreak pandemic or whether authorities will manage to contain it. The one thing markets hate is uncertainty, the inability to draw a line under an event or issue. So far, traders can’t draw that line so the uncertainty could continue to chip away at sentiment pulling stocks lower.
Levels to watch
The Dax is extending yesterday’s 4% selloff with additional losses of 0.8%. The Dax has fallen through its 50 & 100 sma on the daily chart with bears firmly in control.
It is currently testing support at 12878, the day’s low. A break through here will open the door to 12868 (low 31st Oct) prior to 200 sma at 12832.
On the flipside resistance can be seen at 13132 (daily high) prior to 13400 (50 sma).