Are Markets Overreacting?
Teva Lama | Mar 23, 2018 06:50AM ET
Stock markets tumbled on Thursday as Donald Trump signed a presidential memorandum that set the scene for a trade war with China. The Dow Jones Industrial Average dropped by nearly 3% in strong volumes while the CBOE Volatility Index soared by 30% to 23.34. There was higher activity also on the futures markets, with 408,571 traded contracts for the e-mini Dow and 2,574,311 traded contracts on the e-mini S&P 500.
While there was some panic across the markets, we can’t come to the conclusion that the bears are back. The Dow, despite the drop, has not yet reached last month’s bottom at 23,360. It will be interesting to see how the market evolves within the 23,800-23,600 area. If the 23,600 support area was to break, the market could go and test the bottom of the triangle, and, why not, open the doors to the bears.
The Nikkei 225 was even more impacted, with a 4.66% drop since yesterday, taking the market already below last month’s bottom and below the lower limit of the triangle. This breakout could take the market to the 20,500 and then 20,200 support area.
Investors don’t like uncertainty, and there is no catalyst that could trigger bulls to come in, at least until the first-quarter earnings releases start at beginning of April.
As much as the current economic news are causing market pessimism, a good news came out on Friday: Vietnam and South Korea just signed a Memorandum of Understanding, with the aim to boost their bilateral trades to $100 billion by 2020. Food for thought…
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