DAX Index
The Dow Jones, Nasdaq and S&P 500 are all trading lower today as investors start to worry deeply about the long-term negative impact on the global economy from the coronavirus epidemic.
The Dow Jones Industrial Average opened sharply lower on the day as investors are beginning to brace to the possibility of a global recession that has been triggered by the coronavirus outbreak. Bloomberg has already lowered Q1 2020 GDP forecasts for China from 6% to 4.5%, with other Asian countries following suit. Already, several Asian central banks have started to cut their interest rates to prepare for the eventuality of a global recession, with Indonesia being the latest to follow the moves of the PBoC and CBRT earlier in the week.
The Dow Jones is currently trading below the 29,000 price level as at the time of writing and is seriously threatening the critical support level at 28979.
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In the analyses I wrote on Wednesday and Thursday for the Dow Jones index, I identified the possibility of price breaking below the symmetrical triangle on the daily chart to the downside, thus extending the correction from point D on the “W” harmonic pattern. This move has played out, with price now dropping below the 28979 resistance level after testing it yesterday without being able to breach it.
With the markets being in full risk-off mode this Friday, this support area is in danger of a breakdown. However, we need to see a 3% penetration close below this price level on the weekly chart, or two successive candle closing penetrations below the support on the daily chart to confirm this breakdown. If this plays out, then we can expect the Dow Jones to target the next support level at 28746 (previous highs of 27 Dec and 6 Jan, as well as earlier lows of 29 Jan and 5 Feb 2020).
Failure to break the 28979 support could open the door for a further retest of the triangle’s lower border. The lows of 12 Feb and 19 Feb are seen at 29255, and this price level is where the lower boundary of the triangle intersects this price level on the horizontal plane.