Yesterday’s question: How far can this relief rally go? Got the expected answer during US training hours

The rally has stopped. That based on yesterday’s chart was in the cards. Now it will be important that either 2’400 or 2’200 levels are not broken. The pullback is not a surprise, but the question is if the market already priced in the deteriorating news from the corona front from the US and its impact on the economy? The future will answer that for us.

Fig.1: The S&P 500 has not broken its trend line

Therefore, we are back to how long will it take until the lockdown can be relieved? If China or South Kora are any guide to the western world Italy might finally see some light at the end of the tunnel.

Fig. 2: Italy shows further signs of a slowdown of new infected people

Fig. 3: There is as well some hope for Spain

Therefore, the statement of Mr. Trump that there are two terrible weeks ahead of the American people followed by a better time has some empirical evidence.

Fig. 4: Gundlach (the bond expert) expects that the S&P 500 will go much further down than the 2’200 level

Fig. 5: There is as well a bullish view

I would not bet on the bullish case, but I would not rule out that the 2’200 level will hold. This of course depends if in two weeks’ time we really see a flattening of the curve in the US. The developments in Italy and Spain give some hope.

Although there are doubts about the number of deaths in Wuhan, we do see a strong recovery. Chinese real estate bonds were among our favorite places to invest in China. It could be that the sector will fast recover, and the default rate might be lower than the actual market prices imply.

Fig. 6: Chinese real estate sector shows strong signs of recovery

To sum up all depends if the S&P 500 can stay above its resistance levels. The good news from Europe regarding the slowdown of the spreading of the virus is unfortunately no news for European equity markets.

Published: 01/04/20 by Blackfort CIO Dr. Andreas Bickel

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