Technical Analysis on the Covid19 Crash
Updated: May 19, 2020
The markets started feeling weak only when the infection spread out of China. Lack of data and lack of understanding gave us a false hope of the things that were about to come. When the crash came, it was sudden and the markets fell by 40% in less than 20 trading sessions!
However, looking back at the charts, it is clear that the fall gave us ample time to exit or short the market. Let us take a deeper look.
This chart clearly shows a clear uptrend. The market had been following the trendline beautifully. There was hardly ever any breach and any breach that happened, was insignificant at best. Nothing worrisome. Next, let us zoom in on the Breach that happened.
This breach has 5 candles on the support line and then 1 doji forms below giving a clear exit/sell signal. Those 5 trading days and the news of virus spreading should have been enough of a warning, however, the charts were giving a clearer signal. Markets became a complete sell call when that 6th candle formed (doji). Next let us see what the Fibonacci Retracement tells us after the initial fall got over.
Once the collapse had taken place, and the markets stabilised, drawing a fibonacci retracement gave us a different levels. While the 50% is not exactly a fibonacci retracement level, the market did face resistance at that particular point and reversed from there to continue the downfall journey. While it is impossible to judge what levels will the market respect, it is clear that having the knowledge of such things will help one take an informed decision.
Note: The chart is being analysed with closing date of 18/05/2020. The data represents the reality of what has happened. I hope posting this will showcase why analysis is important and why technical analysis works in the stock market.