Is Coronavirus The Black Swan To Sink Dow Jones?
EWM Interactive | Feb 26, 2020 03:09AM ET
Stocks around the globe sold off Monday on fears coronavirus is getting out of control. The virus appears to be spreading from Asia to Europe as Italy announced it is putting 12 towns under quarantine. Dow Jones fell 3.56% in response to the news, while the S&P 500 lost 3.35%.
Now, everyone is wondering if this is the start of a larger plunge in stocks or a buying opportunity. We shared our opinion on the subject back in October 2019, when the coronavirus was far from the headlines. Instead, we based our logic on Elliott Wave analysis of the 4-hour chart below.
Get The News You Want
Get The News You Want
Dow Jones’ 4-hour chart revealed that the market’s recovery from 21 713 was corrective in nature. It looked like a simple (a)-(b)-(c) zigzag retracement with a triangle in wave (b). This meant that higher levels can be expected in the mid-term.
Get The News You Want
On the other hand, triangles precede the final wave of the larger sequence. Hence, this pattern also meant “a long position in the DJIA above 28 000 is not worth the risk.” Once wave (c) was over, a notable bearish reversal was supposed to occur.
Get The News You Want
Get The News You Want
Dow Jones Can Tumble Another 25%
Get The News You Want
Dow Jones reached 29 569 earlier this month, but is now back below the 28k mark. The updated chart below shows that the coronavirus can, indeed, be the catalyst the bears have been waiting for.
The chart above reveals wave (c) has developed as an expanding ending diagonal. It also shows our stance on the slightly bigger picture, namely that the stock market has actually been in a correction since October 2018. The recent new all-time high must be the end of wave B of an expanding flat corrective pattern.
Get The News You Want
If this count is correct, wave C down has just begun. In 9 of 10 cases it is going to exceed the bottom of wave A. Unfortunately for the bulls, this means a drop to 21 000 or lower is in its early stages. As long as Dow Jones trades below 29 569, this is the Elliott Wave count we are going to rely on.
Get The News You Want
Original Post
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.