S&P 500: recovery from the shock

S&P 500: recovery from the shock

2020-03-10 • Dikemaskini

What happened?

The performance of the US stock market has been quite dramatic this week. S&P 500 dropped by 7% four minutes after the US trading session started on Monday. Then trading resumed, but the index stayed in the negative territory. Stocks fell on the growing fear of the economic impact of the coronavirus and the price that broke out in the oil market.

Economic stimulus

Tuesday brought some support for S&P 500 as President Donald Trump said that he will seek a payroll tax cut and “very substantial relief” for industries that have been hit by the virus. Apparently, the virus got closer to the President: he has been in contact with two Congressmen who are now in self-quarantine.

Trump said that he would provide details of his anti-coronavirus plan at a press conference on Tuesday. If he announces big steps, S&P 500 will cheer and get higher.

The prospects of recovery

Correction to the upside is a natural case after a big decline.

According to a research done by Bespoke Investment Group, S&P 500 has fallen by 10% or more on 10 other Mondays since 1952. Interestingly, it has gained more than 2.2% the next trading day in all of the 10 cases. In addition, on average, the index has returned 12.75% in the six months after the slump.

Of course, the previous history offers no guarantees for the future price action. Still the combination of this observation together with Trump speech has a chance of producing positive market dynamics.

The chart

S&P futures price is testing levels above February low at 2,853.25. Resistance lies at 2,975 (resistance line of the short-term downtrend, 50-period MA on the H4). Support is at the previous low of 2,695.   

S&P500-20HH4.png

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