Market Overview

16 June 2020

Coronatennis: Third Set, Second Game

With great regret, the famous Wimbledon tennis tournament was cancelled in 2020 due to public health concerns, and for the first time since World War II. Waves of coronavirus and the response to the global crisis caused by it could be well compared in terms of sets and games run by both sides of the lawn. So, whose serve is it now in the stock lawn?

The first set in February and March was won unconditionally by the novel coronavirus, which brought down the markets. Traditional investors who came from an aristocratic long-term bulls’ ancestry with the help of ladies and gentlemen from central banks may have only managed to score their first points at the very end of the first set, but the final result was still 0:6 by games.

The entire second set was held with a clear advantage of the players from this elite club under the shadow of a recovery rally. Starting on March 23 until June 10 hopes for a sustained monetization of the business models of major global corporations at least a year after the end of the most acute phase of the pandemic fuelled the growth of global indices. The 113% overlap of the previous fall in the high-tech US Nasdaq index, 86.5% recovery of the S&P500 broad market index in the New York stock exchange and almost 70% compensation of losses caused by the virus in the first set to European markets.

Each set is scored separately while the profits and losses in different transactions are counted together for a certain period, and then a new count begins. So, the third set began in the middle of last week with an aggressive ace serve of some newsfeed-induced fears of a possible second wave of the virus, slashed by rather gloomy Federal Reserve (Fed) forecasts and raise tensions from the riots in the U.S.

The reasons behind this, the balance of forces of the opponents, and on whose side the largest amount of funds would fall and would be larger funds of the big banks has already been discussedAnd they served as some bullish representatives which backed the honour of classical investment traditions and already bought fresh Monday's dips both in the Old World and the New World.

Technically, the white body of yesterday's rising candle completed the two-day Bullish Engulfing model on many stock indexes’ charts. Today, both European stock indexes and US index futures are reaching even higher, having recouped more than 61.8% Fibonacci retracement of their previous fall, counting from the peak of last Wednesday, when the Fed’s meeting ended. To continue with tennis parallels, the score in the first game of the third and crucial set is still 15-30 on the serve of bearish viral alarmists, but in favour of bullish quasi V-shape optimists. But all set points and match points are far ahead.

In addition to purely technical "buy on dips" tactics, the decrease in the number of infection cases in all the problem-making American states yesterday, such as Florida with 1758 new corona cases after 2625 spike at June 13, Texas or some regions of California with its more "usual" corona figures now, is an argument for optimists who are not ready to believe in a kind of apocalyptic second wave or second quarantine, but rather ready to believe in another breakthrough to new historical heights within a year. Some of them also believe that the issue of principle movements towards higher goals is more important than the issue of timing since after the previous crises the stock rally has always been even more mature.

The ongoing re-opening of Europe, where restaurants have already started operating in France since June 15, and the country's president Emmanuel Macron called it an important victory and said the nation "turned over the page", as well as more open borders for EU travellers, also helped the optimist camp a little. Even more encouraging for the markets is maybe the news that today the Fed is beginning the next stage of the program of buying corporate bonds, among which some new assets - that have not yet been involved in the program before – which will be issued by companies are expected. 

The main argument of pessimists is an obscureness of an unfamiliar viral situation. But the "court" is positioned so that tennis players are also dazzled by the sun, the ball bounces oddly off the lawn, and nobody can even see who the arbiter is and whom to appeal. Both sides refer to the proximity of the US November presidential elections with their use of the virus theme as a campaign trump card for or against the current president, Donald Trump. The depth of the economy's decline in the second quarter is also a subject of discussion. Various double-digit figures are mentioned as the British economy recently officially performed a 25% decline in gross domestic product for March and April - and it is yet unknown how much and whether the bottom situation would be better on the continent and across the ocean.

It's only possible to say at the moment, that the optimists' group briefly seized the right to serve the next ball. However, every piece of news and every noticeable technical step on the charts is like a new ball in the game, and no one can say for sure who will win. Everything is up to the game and the strength of the players.


Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

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