S&P 500 Nose-Dive & Turmoil In Oil

Summary of what has happened


US Indices futures (S&P500: ES1) plunged approximately 18% since last Friday’s closing, and have officially entered the bearish region. While the initial selloff was triggered by the global spread of Covid-19 and its potential economic implications, it was further exacerbated by the oil price war. At present, there is lingering fear in the market due to the apparent failure in containing Covid-19 and the declaration of virus as a global pandemic by the World Health Organisation. Although central banks and governments have attempted to step in and offered attempts at monetary and fiscal stimulus, it appears to be doing little in lifting market sentiments. Hence, with US indices showing constantly having wild swings, and a 5% intraday movement being the new norm, volatility is expected to remain rampant.

Crude Oil

OPEC+ met last week to decide on production cuts to alleviate the drop in demand caused by the impact of the coronavirus, but were not able to agree on the quotas. The talks failed and the major partners, Saudi Arabia and Russia, then made announcements on ramping up production to gain market share. Crude oil prices fell with the NYMEX Crude Oil May contract dropping more than 30% and testing lows last seen in Jan 2016. The long term support held and the market retraced up by $9 a barrel. President Trump’s travel ban from Europe on Wednesday, added more bearish pressure on the oil market and benchmark contracts dropped 4%.


What is likely to happen next?

S&P 500

With other Asian Indices hitting their circuit breakers today as well, the uncertainty and fear would likely result in more near term weakness for global indices.

Crude Oil

The oil market is very sentiment driven with the market reacting readily to news headlines. The oil market is in a surplus supply situation and with demand tapering off from the impact of Covid-19 and with producers ramping up production, crude oil fundamentals are weak. However the market seems to have digested most of the bad news. However, downside risk remains and the path of least resistance is sideways or lower.

Technical analysis for SPX500 CFD on MT5

SPX500 Hourly Chart Immediate Resistance: 2669.6 Immediate Support: 2338.9

Technical analysis for Crude Oil

The technical indicators are oversold with the daily RSI at 23 at the low end. Support for the contract is at $30.00, $27.83 and then $25.00 and $20.00. Resistance to look out for will be at $36.70 and $41.29.


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