The latest twist in the Coronavirus spread has sent global stock markets and the S&P 500 much lower. It has also triggered the CNN Fear and Greed index to turn from a neutral reading to “Fear” readings.
The Fear and Greed index spans from 0 to 100, and the latest reading is at 33. Looking at prior lows in the F&G index in conjunction with technical analysis has, in the past, generated a good idea if a low is pending.
The index is currently at 33, which suggests that there is fear in the market, but the number is not at the same level as seen in October last year. At that time, the S&P 500 was challenging the August low, but in the end, the bulls won, and the S&P 500 index rose by about 19% from its October lows.
Looking at the Fear and Greed index today, the index could slip to the 19-level before it suggests that we should see a significant low, however, technically, the S&P 500 is at an exciting level.
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The price is just above the January 31 low of 3216, and the January 3 low of 3205, and the latest slide has effectively erased this year’s gains.
The return to the open level of 2020, and also the January 3 and 31 lows, make the 3205-level interesting from a technical perspective. Either, the index will bounce from current levels and revisit its 2020 high, or it will slide below support and slip lower, the risk-reward ratio favors a bounce.
The alternative is that the S&P 500 closes below the January 3 low at 3205, and this could open the door for a further decline in the weeks ahead. The next support level in-line would then be the December 3 low at 3037.9.
The 200-day moving average level is also around the same level, and it is currently just below it at 3050.6. If the S&P 500 indeed trades this low, then it would probably mean that the Fear and Greed index would be near or at the 19-level, e.g., just around the same levels of panic and fear as we saw before the price rose from the October 2019 low.
The combination of an interesting low, the 200-day-moving-average, and the possibility of having the Fear and Greed index at a very lows level, makes the December 3 low a very interesting level to watch.
The challenge for stock markets is how much further the virus could spread. Right now, it is centered on Italy and South Korea, with the problem spot probably being Italy, given that it is in the center of Europe, and bordering with France Switzerland, Austria, and Slovenia. The daily growth rate of the virus will, therefore, be interesting to watch. When the panic was its highest, and Chinese stocks were at their lowest levels, the percentage growth rate of the virus in China was also its highest. If the growth rate in Italy indeed expands in the next few weeks, then that could leave stocks under pressure, and trade to lower levels, while if people think the growth rate will slow, and it indeed slows, then the S&P 500 could bounce from current levels.