One key technical area to watch
There is a tug of war going on at the moment between record amounts of fiscal stimulus on the one hand and concerns about Q2 earnings on the other. Will see a V shaped recover, a W shaped recovery or another leg lower in stocks? With so many unknowns remaining the questions continue on and on. Will a vaccine appear quickly, how widespread is COVID19 already (is herd immunity closer than we thought), and how bad will the Q2 data actually be? As a result the path ahead is hard to pick.
However, there is one technical tool that is useful in helping us and that is the Daily 200 moving average. In the last two major recessions of 2000 and 2008 the 200 daily moving average acted as a 'barrier' to any attempt at a bullish recovery. It will also be a key area to look at on any attempt at a so called 'V' shaped recovery. It is called a 'V' shaped due to it being seens as a fast and swift recovery that spikes down, but then up quickly in equally quick fashion.
Taking a look at the S&P500 in the 2000 and 2008 recessions you can see the way that the 200 DMA contained price. The 2000 and 2008 recessions were both deep recessions, so they do offer some form of comparison to the current crisis, albeit the current crisis is a medical one. Look at the chart below to see the impact of the 200DMA in 2000 and 2008/9 to hold back a stock recovery.
So, going forward, look around the 3000 region for signs of a bullish rise higher, or a bearish move lower. It is likely to be keenly watched as a key technical area. At the moment price is still under the 200DMA and no talk of a V shaped recovery can be had until/if it is breached higher.
