We currently have a global situation that I have never personally experienced before and nor have the majority of the world’s current leaders.
It is now all about compromise. Compromise itself is usually a powerful, positive and effective way to move forward in business, politics, and any normal negotiation situations. But this compromise that the globe is now facing is so very different!
The world’s leaders are juggling with two major priorities, neither of which should be compromised, and whatever decisions are made, will have a negative impact on them both.
On one hand we have the lives and general health of people exposed to coronavirus. This concern is, in itself, a major responsibility for any government on behalf of their nation. The rising number of deaths is horrendous and every effort should obviously be made to minimise the situation. But one can also argue that in terms of a nation’s overall well-being, the numbers are really insignificant. We lose just as many in car accidents, minor military skirmishes abroad, cancers and other major diseases and so on, without shutting down the country. Trouble is, no one dares to predict how devastating the virus would become if allowed to run free (except maybe in Sweden!).
Against that priority, we have the economic welfare of the various states. And this is also a major responsibility of any government on behalf of their nation. As has been said in the US: “the solution cannot be worse than the problem”. We have seen depressions and recessions many times and always the world has re-emerged and moved on. But rarely has the global economy run into a brick wall and almost stopped in its tracks. There is little doubt that we will emerge and recover - but at what cost and with what reordering of the global power structure?
We have already seen agreement of huge domestic aid packages by governments and a lot of pressure and argument for additional huge aid packages for foreign nations such as the developing countries and EU worst-hit areas. All of which are a huge future burden on rising economies and future working people.
So governments need to compromise: How do we minimise deaths, minimise risk of a 2nd cycle, minimise the impact on the economy and health services, minimise the costs that will be borne by future generations, and, at the same time, optimise and facilitate a quick return to stability and renewed growth?
Health of the individual v. health of the nation?
We have lived through the immediate dramatic impact of widespread lock-downs. We are now seeing a levelling off of new infections and death rates, and we are entering the stage of governments planning and projecting the lifting of restrictions and resuscitating their economies.
The US cannot, and will not, be seen to be the last nation to start reviving - and I think that is what we are seeing reflected in the SP500 performance.
This hourly chart shows the strong upmove at the end of last week as well as yesterday’s actions. There were two buy entries yesterday (arrowed and ringed in red), both of which followed compression periods into the band or “cloud” beneath the current price movements (blue rectangles). Both retracements saw no follow-through on the down side and re-emerged from the band on the upside - with good, tradeable follow-through.
Where do we go from here? Well, currently we are at the highs reached last week (green rectangle) and that may well run into some profit-taking from overnight trades. We may also see a retesting of the 50% retracement at around 2790. But with such a widely noted Fib retracement of the total down move since it started in February, then there are surely many eyes on the 0.618 retracement above the market at around 2930.
We have already passed above the 200SMA on the 4-hour and weekly levels, but NOT on the daily yet. That, to me, suggests we are still in a broad corrective stage of the major sell-off and that points to continued volatility in both directions.
But, whilst we remain in the optimistic state of mind that the peak is over, and the emphasis remains on how and when to remove restrictions and kick-start the economies back into action, then I favour the upside.
I think the biggest negative threat is the possibility of a second wave after removing restrictions - and for that we need to keep watch on China.
Another unknown concerns the spread of coronavirus in other major economies like Russia, India and Africa, as well as the global slum areas, refugee camps, and any other major locations with masses of people in close proximity with limited health and hygiene facilities. If coronavirus breaks out in these areas in a big way then there is no idea of what impact that will have on the current frail state of the rich nations.
We are not in the clear yet…
