Investors have started to back riskier assets once again as they feel optimistic regarding the coordinated action of central banks around the globe. The Dow Jones scored more than 1000 points yesterday and closed with a gain of 4.53%. The S&P500 index increased by 4.22% and the Nasdaq index gained 3.85%. If we compare all three major indices on a daily time frame with respect to their important simple moving averages, it is the Nasdaq index which is leading the rally. It is trading above 100-day simple moving averages while the other two indices are in a battle with the 200-day moving average. In fact, during the recent sell-off, the S&P500 and the Dow Jones index fell below the 200-day moving average, but the Nasdaq index bounced from its 200-day moving average.
The US economy (as we discussed yesterday) is still in good shape and we are not seeing any major influence of coronavirus yet. For instance, if we just look at the economic numbers released yesterday, the US services sector expanded at a much stronger rate than the market’s expectations. The ADP non-farm employment data was also much sturdier than the market anticipated.
Another reason for the markets to rally yesterday was also due to super Tuesday. Joe Biden, the former Vice President, scored a major victory, and this pushed the health care sector higher. His victories in North Carolina, Texas, and Arkansas have increased his chances of being nominated as the presidential nominee from the Democratic Party.
So, the bigger question is whether investors should jump back into the equity markets?
Well, if you are a day trader, I think there is never been a good time than now because 1000 points swing in a day for the Dow Jones has become a norm. The sentiment keeps on flipping and this is keeping the traders on the edge. So, for day traders these long swings in the markets are a perfect opportunity. But If one has a long-term perspective about the stock markets, then they should focus on the 200-day moving average and its battle with the price. As long as the price stays above this moving average on a daily frame, it is highly likely that the equity would continue its journey to the upside.
In terms of commodities, all focus is on the OPEC meetings. As mentioned before, investors have largely priced in an oil supply cut, but one thing they are not sure about is if the cartel would also surprise the traders by introducing much deeper cut just like how the central banks have by providing extra cushioning for the global economy. However, given the fact that Russia resisted the idea of cutting the supply earlier, it is difficult to consider a situation where we get deep cuts.
As for the gold price, it is still holding on to its positive momentum. The price is trading above the 1600 but the price action isn’t strong enough to go beyond the 1650 mark which is important for the bulls because we need to cross this level otherwise it is likely that the price will lose its upward momentum.
The economic docket is more about the Bank of England’s governor speech. He is scheduled to speak at 5:00 PM UK time, the expectations are high and people are expecting the bank to introduce an interest rate cut. It is the ECB and BOE that need to join the club of cutting the interest rate because of Coronavirus.