FTSE100 - WILL LONG TERM THINKING WIN?
We are currently seeing a 30-40% adjustment in the markets due tot the impact of Covid-19. After last week's crash, governments have announced economic relief bills of unprecedented sums of money that have turned the market bullish. Although such "rescue packages" are effective in the short-term, they cannot cover long-term economic damage that is expected to result from restrictions under Covid-19 and the oversupply in oil.
Most countries in Europe, and the US have not yet seen the peak in cases and deaths as the corona-virus keeps infecting and killing. Governments are imposing tighter restrictions and Italy is considering moving to a "war-economy" that will shut around 70% of the economic activities. Although other European countries seem to have a less steeper increase in corona cases and deaths, it is very likely that most economies will need to shut down more and more over the next coming weeks. Many suggest that the US will become the new "epicenter" of the disease as the virus continues to develop. Some experts say that the virus may slow down in warmer weather, and future infection-waves may be inevitable.
Now, let's back this up with some historical and chart analyses:
> CCI wave end of Mar-20 similar strength as in Jul-02 and Sep-08. In the latter two instances, both where followed by a less powerful bearish market that despite the lack of strength pushed the market down further. The time frame between the two waves is from Jul-02 to Jan-03 (+/- 6.5mo) and Sep-08 to Feb-09 (+/- 5mo), averaging around 6 months.
> The above is supported by:
- applying the Elliot-wave theory on the downward trend in the index, which have been very applicable in the past recessions as the chart shows. In 2020, we have seen two downward
impulse waves (A,C) and are currently in the second correction wave (D). Correction went back to 0.38Fib, whereas correcton D went a little over 0.38Fib and therefor may first
continue upwards to 0.50Fib (c. 5850) or even 0.62Fib (c. 6100) before continuing with the last wave.
- MACD suggest a strong bearish market that is not close to cut the base and move into a bullish market.
> Assuming the Covid-19 crisis will lead the economy into recession with similar impact on the economy as the 2003 and 2008/9 down-cycles, the index will be falling towards or just below the 4000 points around June or July when the real impact of the Covid-19 restrictions will be felt in the economy. However, the bottom may be strongest in May when Europe at the end and the US at the start of the Covid-19 peak as panic kicks in, hospital capacity is reached and economies need to be shut down almost completely. Also, most analysts are focused on emerged economies but most companies on 1st world stock exchanges have significant economic and market exposure in emerging markets where healthcare, governing and economic systems are not as sound, and where the impact of the virus may not be controllable in any front.
> The above is all subject to the developments of Covid-19, but also the lower oil price that is expected to remain low throughout April-20 as Saudi Arabia and Russia will not ramp down production to stabilize global prices. It will be interesting to continue monitoring all developments and see how the world reacts to a problem that we have never faced in modern times.
Most countries in Europe, and the US have not yet seen the peak in cases and deaths as the corona-virus keeps infecting and killing. Governments are imposing tighter restrictions and Italy is considering moving to a "war-economy" that will shut around 70% of the economic activities. Although other European countries seem to have a less steeper increase in corona cases and deaths, it is very likely that most economies will need to shut down more and more over the next coming weeks. Many suggest that the US will become the new "epicenter" of the disease as the virus continues to develop. Some experts say that the virus may slow down in warmer weather, and future infection-waves may be inevitable.
Now, let's back this up with some historical and chart analyses:
> CCI wave end of Mar-20 similar strength as in Jul-02 and Sep-08. In the latter two instances, both where followed by a less powerful bearish market that despite the lack of strength pushed the market down further. The time frame between the two waves is from Jul-02 to Jan-03 (+/- 6.5mo) and Sep-08 to Feb-09 (+/- 5mo), averaging around 6 months.
> The above is supported by:
- applying the Elliot-wave theory on the downward trend in the index, which have been very applicable in the past recessions as the chart shows. In 2020, we have seen two downward
impulse waves (A,C) and are currently in the second correction wave (D). Correction went back to 0.38Fib, whereas correcton D went a little over 0.38Fib and therefor may first
continue upwards to 0.50Fib (c. 5850) or even 0.62Fib (c. 6100) before continuing with the last wave.
- MACD suggest a strong bearish market that is not close to cut the base and move into a bullish market.
> Assuming the Covid-19 crisis will lead the economy into recession with similar impact on the economy as the 2003 and 2008/9 down-cycles, the index will be falling towards or just below the 4000 points around June or July when the real impact of the Covid-19 restrictions will be felt in the economy. However, the bottom may be strongest in May when Europe at the end and the US at the start of the Covid-19 peak as panic kicks in, hospital capacity is reached and economies need to be shut down almost completely. Also, most analysts are focused on emerged economies but most companies on 1st world stock exchanges have significant economic and market exposure in emerging markets where healthcare, governing and economic systems are not as sound, and where the impact of the virus may not be controllable in any front.
> The above is all subject to the developments of Covid-19, but also the lower oil price that is expected to remain low throughout April-20 as Saudi Arabia and Russia will not ramp down production to stabilize global prices. It will be interesting to continue monitoring all developments and see how the world reacts to a problem that we have never faced in modern times.
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