Play it safe, stay with gold…at least for a little longer

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24.02.2020 | 3 Læsetid
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The stock market is fighting with reality. Despite reports of an increasingly weak economy in China and the Corona virus now starting to spread outside of China at an even faster pace, the stock market indices are still at their peak levels.

The stock market is fighting with reality. Despite reports of an increasingly weak economy in China and the Corona virus now starting to spread outside of China at an even faster pace, the stock market indices are still at their peak levels. Fed member Bullard was asked last week if the Fed could reduce its economic impact with monetary policy support, which left him speechless. Otherwise, Bullard is among the Fed members we have the greatest respect for.

On Friday, the Purchasing manager's index for the service industry in the United States was published. For the first time in a long time the index fell below the critical 50 level…indicating a shrinking economy.

The large inflow of money to the markets is creating buy pressure on all types of assets. The effect is most clearly seen in China (The Shanghai Stock Exchange Index, SSEC, in yellow):


The graph above shows some of the world's leading stock market indexes. Find the error: China's Shanghai index, which is most affected by the Corona virus, is on steroids. The Chinese authorities do not want to show its concerns – so what is more appropriate than to put stocks on steroids making them go through the roof?


The spread of the Corona virus perhaps gives support to the development for SSEC. As can be seen in the graph below, the spread is losing momentum (see orange line):


The problem is that we and many with us, no longer believe in the numbers coming out of China.

The graph below illustrates the number of infected outside China, note the exponential growth:


South Korea, Japan, Italy, Singapore and Hong Kong are the biggest contributors. But also note that Iran and Italy have a significant number of infected. Indonesia is still missing among the top eight contributors – the question is whether it not is tracked or just underestimated? We say as we always have said, this is not over until it is over…

The S&P 500 index fell on Friday by almost 1,1% given the weak PMI-figures:


MA20 still serves as support. Note MACD that has generated a weak sell-signal. A break below MA20 and MA50 around 3 275 serves as second support level followed by the 3 225-level.

MACD has also generated a weak sell-signal for the tech heavy Nasdaq index:


MA20 still needs to be broken before the next level on the downside around 9 205 can be tested.

Instead, money now flows into more safe asset classes, with gold in the lead:


The gold has broken up above its previous top from early January. Momentum hunters can now quickly switch from Apple and Alphabet stocks etcetera to gold…

The Apple share, shown in the daily graph below, is clearly losing momentum after that the revenue estimates will be missed due to production issues in China where factories are temporary shutdown to prevent the spread of the Corona virus.


In case of a break below the rising trendline and MA50 the two next support levels are found at psychologically important USD 300 followed by the USD 290-level.

The Google (or Alphabet) share is also losing its momentum. However, MA20 is still intact – meaning that the short trend is still on the rise.


A break below and the first level of support can be found around USD 1 445 followed by rising MA50/rising longer trendline.

Another asset perceived to be a safe haven is the USD. This is clearly visualized in the trading pair USD/SEK. In this case – it may be a good idea to let the trend be your friend.


The next level on the upside to be broken is 9.8275 before the previous top from October around 9.964 can be tested.

In the hourly graph below, one can see how the OMXS30 index has broken the short rising trend and MACD has generated a sell signal:


1 840 should function as some sort of magnet. However, first the 1 875-level needs to be broken as well as the 1 855-level.

The German DAX index has also broken its rising trendline in the one-hours graph:


MACD has also generated a sell-signal but the hourly MA200 still serves as support. In case of a break to the downside, the next level can be found around 13 220 followed by 12 955.


This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capital protected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.