Fear over the spreading of the Coronavirus has caused the S&P 500 (SPX) to drop just over 3% from its record high. The dramatic drop last Friday begs the question of whether the weakness was enough to cause a sustainable rally. Despite the stabilization this morning in the SPX Futures (+15points), we expect further consolidation is needed to work of the intermediate-term overbought level. The lift in futures this morning despite a 7.72% drop in China’s Shanghai Stock Exchange Index is likely a result of no major worsening of the Coronavirus coupled with the stimulus announced by the Chinese government to stem any major downside in the market. This virus and the fear surrounding it has basically caused a shutdown in the world’s second largest economy, which is going to have a fundamental impact. The question becomes how do we know when to get back on offense?
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