In this article, let’s decode corona virus & Shanghai stock markets with an objective technical analysis and sentimental outlook. In financial markets, most of the times extreme pessimism is preceded by the bottom formations. This event is also one of the classical example of similar case scenario.
The Shanghai composite – Chinese stock markets bottomed out the same day after a gap down opening of around 9-10%. With fears all around the globe jitters caused due to carona virus widespread in Wuhan, still markets bottomed out. Thus, let us sneak into what made markets bottom out.
I would discuss three parameters going ahead how corona virus and stock markets behaved here as follows:
- Fundamental action.
- sentimental indicator.
- Technical analysis.
Fundamental Action:
The link below will hint the measure taken by Chinese government and state owned companies to calm down the markets.
https://www.barrons.com/articles/stimulus-by-china-is-helping-calm-stock-markets-51580926588
- $22 Billion in Stimulus
- Share buy-back by state owned companies
- Loans from Private big companies like Alibaba etc.,
- Restrictions to revoke loans of companies in epidemic hit areas
Corona Virus v/s Sentimental View:
There are many such examples where in during a major event a trend reversal happens. The Indian Union Budget 2020 was one of the classical examples. The Indian stock markets were in corrective mode going into budget and on a budget day Feb 1st 2020. On the budget day, NIFTY cracked down by 300+ points to recover back from 11600 to 12250 zones in just 8-10 trading sessions. The similar example on 2018 budget day, major top in the Indian NIFTY Midcap 100 indices happened which were flying at exuberant levels.
The above chart clearly gives a picture of last two examples in global financial markets. The panic scenario during SARS in 2003 and H1N1 in 2009 clearly made a bottom in financial markets. The chart above is an example of Dow Jones and S & P 500 of US stock markets.
Therefore, the conclusion to the story and rationale is most of the scenarios whenever there is extreme pessimism in financial markets rebound viciously in opposite direction. Because when when 99 in box trading room of 100 playing turn into sellers/buyers profit booking triggers markets to behave like that. The irrational pricing eventually claws back towards equilibrium.
Corona Virus v/s Technical Analysis View:
Anticipated:
The Chinese Equity Index – Shanghai Composite after a 5 Wave advance retrace 76.4% perfectly touched the lows of the channel. The pain low was formed on the open after more than weeks closure on impact of Corona virus. Thus, traders could have perfectly identified the high probable trade setup on the panic day at 2685 zones.
Happened:
As quoted, the image itself portray more than 1000 words. The Shanghai composite rose more than 10% from panic lows & rest is history as we all know.
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