Today is Friday February 28th in the year 2020 and the U.S. indices are opening for a 6th day in a row lower than the previous trading day. Over 12% of market value has been lost over the last 8 days. The bullish investors have been looking optimistically looking to buy on the dips. Although with the bears currently pushing the market down rapidly there has been no sign of a support being met.
The main contributor to the sudden fall of prices appears to be the overall fear globally with the Corona Virus. We understand that many organizations around the world are working diligently to help mitigate the spread of the virus. With thousands of lives being at risk now is a time for individuals to stay home and away from attending large public events in parts of the world.
In just 8 days the market dropped a total of 12% market value
The market has been climbing up to unprecedented levels over the last few months. A correction has been spoken about by many economist for weeks now. Many individuals for the longest time denied the opinions and remained confident in the strength of the market to continue to push to new highs. As it did for quite some time.
Even at the start of 2019 when we saw the market make a significant drop quickly in just a few weeks, it recovered just as quickly. We saw price not only recover well but then also create a new support level to then continue on its path upwards. This situation is playing out a bit differently.
We are seeing price spike down dramatically coming back towards a major trading zone from a few weeks back. We are currently trading near the bottom of that range. The market is fuel with attention and the media rushing to warn investors of the shut down of factories and the reduction of consumer spending during these troubling times.
Technical Analysis
I used a Fibonacci Retracement on the bottom of 2019 to the top of 2020 to determine the entire movement. We can see how we have currently retraced 50% of the market value from the low of 2019. There is potential for price to create a support level from here or potentially continue to retrace the entire movement.
As more investors look to close positions and hold onto their cash the market will continue to see significant loss in value. We need to see a light of hope before we will see the market start to recover from this drop.
There will need to be regained consumer confidence and individuals need to start to feel safe again traveling and going out in public in the Asian and pacific regions. Unless we can see some overall restoration of confidence there may be a few more days of downwards momentum left before we see a reversal.
Just to put how dramatic this drop is into perspective lets look back and compare this to the real estate crash back in 2008-2009. In 2008 it took 182 days for the market to drop a total of 12% market value. It took just 8 days for the market to drop a total of 12% market value in 2020.
Restoring Consumer Confidence
We certainly will not be able to predict what comes next after such a dramatic change in market direction. We can look forward for a support being created and price beginning to stabilize once public begins to regain a sense of safety. There is currently great discomfort overall in the world that requires resolution.
Fear and the market do not mix well together. As there is fear in the world the market tends to want to protect itself. Meaning individuals are scared that they may loose money so they take their money out of the market. As fear increases volatility increases which results in individuals making sudden decisions without giving much thought.
Fear can lead to individuals over-trading and potentially leading themselves to loose capitol due to poor execution. Having fear can also lead individuals to not participate in the market resulting in them missing a potential opportunity to be able to earn profits.
We have conflict in our health with a deadly virus spreading through countries. We have conflict in our environment which is forcing organization to redesign the way they do business to not only protect but to enhance the quality of our planet. With this issues on the forefront the public wants resolution.
It’s important that investors of the market we stay present and aware of what is going on in the world. Stay connected and pay attention to your local community and the global one we all are apart of.
There will always be losses when investing in the market long term. The important part is to keep them small while letting your profits ride. Keeping tight risk management will enable you to keep losses small as the market is rapidly moving and can change direction quickly. It is always important that you are protecting you capitol from risk exposure appropriately in the market during volatile times.
These ideas are of my own and you may or may not agree with them. Which is why I would really enjoy to be able to hear your idea!
In the chat below tell me what your ideas are about the current situation in the market.
Disclosures
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