*updated post on 4th March 2020*
Coronavirus Wuhan or COVID-19 is on top of everyone’s minds right now. Instead of pretending to an economist, I will give a technical view of the stock market since the Virus and what are the possible sectors and stocks you should be looking at.
First, let’s talk about the biggest market in the world: the US stock market.
Below is the SP 500 chart:
The earliest reported symptoms occurred on 1st December 2019, S&P500 has actually risen since the virus. From this, we can see the market rather resilient to this. But how about the Chinese market?
*China A50 since the COVID-19 Virus*
The China A50 has dropped since the high of 14th Jan 2020, but has since rallied about 50% which is a Fibonacci retracement level.
I think it is possible for the short-term, that we have another leg down to test the low in February.
However, I don’t think it would break the lows unless the situation worsens from here.
Next, what are the US sectors you should consider for trading?
Over here, I am not going to give the usual, buy healthcare, pharmaceutical and sell retail and services kind of advice. Though it sounds logical somewhat. Let’s take a look at what is actually happening 1 week or 1 month ago vs the price now.
The strong sector from the last 1 month is still the technology sector.
However, for the energy sector, it has dropped significantly. As the saying goes, the trend is your friend, I think going forward, this trend will still remain. Energy may continue to remain weak vs the other sectors.
For the global sector, it is just a slight difference, utilities sector is the strongest sector, fund managers are more defensive now and preparing for the worst.
Lastly, what are the stocks we should look at to buy or sell? Below are the list of stocks. These stocks are ranked according to their strength vs the index in the last 1 month. One thing you have to note is that you still need to have some selection process to choose which stocks to buy or short.
As you can see on the right side of the chart it shows the number of arrows. Those that already have a good number of arrows are probably a little too late in the trend. Eg: Tesla ( 17 arrows).
So in conclusion, looking at the market now. This COVID-19 virus does not look like it’s affecting the market much as of yet. If the situation does worsen, the market may still continue to rally ahead. This is the view as of 13th Feb.
Sector-wise buy tech or utilities, sell oil.
*Latest Update 4 March*
SP500 corrected and right now the long term the price is below the long term(red) GMMA lines. Both the short term and long term GMMA lines are slopping down which means that short term next 1-2 months we may test the low in late Feb. Support is around 2950. If the support breaks then the next level to look at is 2800.
Now lets take a look at the weekly chart.
From the weekly chart, we can see that the uptrend line is still intact. So as of right now, it is still considered a correction.
Next question, what should we do now? Buy, sell or hold?
I will say wait and see, for short term (1 week) we could do shorts on the rally. For the long term, 1-3 months time-frame; it’s still buy on the dips.
It is low probability to have a bear market. Price has to break below the 200 week moving average and the long-term uptrend line will have been broken.
The 2 times when this actually happened was when the SP500 dropped 35% in 2002, and 47% in 2009 accordingly.
In terms of sectors, technology and utilities are still the strongest and the weakest is still energy.
So in conclusion, the current trend is the correct trend. For short term, the current trend is down, but for the long term, it is definitely still up.
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So back to the Tesla share price, hold on to Tesla if you already bought and wait for a dip around $540 to get in you have not bought any.
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