FTSE MIB in Free Fall, Watch These Levels for a Possible Bounce

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Written By: Alejandro Zambrano

Feb 25, 2020, 18:06 GMT 18:06

Summary:

In the last few days, the FTSE MIB has lost almost 10% from its 2020 high, as northern Italy shuts down to limit the spread of the Coronavirus.

In the last few days, the Italian stock market, FTSE MIB, has lost almost 10% of its value from its 2020 high. The move lower comes about as panic spreads in Italy and the rest of the world following the latest breakout of the Coronavirus. The soft economic situation in China also suppressing investors’ mood following the shutdown of their economy.

According to the official figures, the situation in China appears to have stabilized, and some companies are trying to get production up. As production comes back online, economists are projecting a V-shaped bounced in economic activity that should support stocks.

If the situation in Italy follows the same path as we saw in China, then that means that the FTSE MIB can continue to add to its losses until the percentage growth rate of cases declines. From February 23 until February 25, 5:42 PM Italian time, the number of cases had risen from about 147 to 288, according to La Repubblica. The change from 23 until 25^th is an increase of 96%. In China, the growth rate was about 35% per day until February 4, when the growth rate started to slow down, it was also around the same time, that stock markets bounced in China.

As the Italians have been quicker to isolate than the Chinese, we might see a slowdown in the growth rate over the next 5 to 14 days. However, it also depends on the rest of Italy and the whole of Europe taking the necessary precautions. The slide is FTSE MIB could be extended if other European countries fail to make the required measures, as we see new hot-spots of the virus.

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Technical levels to Watch

The support levels that might trigger a bounce in the FTSE MIB are the December 3 low of 22585, followed by the September 20 high of 22313. Around the September 20 high we also find the 200-day-moving average. The corresponding average helped to suggest lows in the index in June and August 2019. In those cases, the index slipped below the average with about 2% each time. If September 20 low fails to hold, then that might cause the FTSE MIB to target the October 3 low.

Written By: Alejandro Zambrano

Alejandro Zambrano combines extensive professional experience and a pragmatic attitude to trading, building clients’ understanding of the markets and the rationale behind investing. Zambrano was the Chief Market Strategist of the FCA regulated broker, Amana Capital. Prior to that, he was also the Head Analyst at FXCM’s London research desk. Interact with Alex via Twitter at @AlexFX00.