Estimated reading time: 5 minutes
by Pierluigi Gerbino
Since the opening of the US market, which took place with a strong bullish gap, since Wall Street took a holiday on Monday, the American index rose above 3,000 points and spent the session almost entirely, although in the last half now significant profit taking has taken place, which led the index to close curiously below the round level above which it had remained for the whole session (at 2,992, + 1.23%).
Let’s try to hypothesize what has helped him to achieve the goal he had been targeting for weeks and what might have scared some investors in the end.
From a technical point of view, the area of 3,000 points represents an important resistance. The round figure and the long run average are evidence that everyone observes. The average 200 sessions for many observers is the door that separates the bullish paradise of green meadows, on which the bull grazes, from the bearish hell that hosts the bad bear. When the trend is positive, such as during 2019, the average was seen as the support to hold on to in times of uncertainty of the trend (it happened at the end of May) and its stability stimulated the continuation of the rally. On the other hand, when the index goes through a deeply bearish phase, such as the one experienced through the fault of the covid recession, its resurrection finds an obstacle to overcome and only the breaking down of that door can bring the mood of the operators back to the bullish paradise.
The prudent wait for the overcoming before buying, the brave anticipate the event by giving it for sure. Being the ring on which the boxing match is fought between the two antithetical forces that have always confronted each other on the market every day (the bullish optimists and the bearish pessimists) it is natural that it attracts prices.
However, the technological evolution and manipulative possibilities of strong hands have changed the value of these price areas in recent years. More and more they become the ground of a dirty clash, full of pitfalls and low blows. Many times a battle, which seemed won by one of the two forces on the field, saw a sudden reversal of the situation, generating a false signal. A striking case was that of the end of May, when the average was broken downward for two sessions and then the denial of the signal occurred, the return above and the impetuous recovery of the rise. At the beginning of the sharp drop due to the virus, however, the battle on average was fought for 6 sessions, from February 27 until March 5. In those 6 sessions the average was crossed downwards and upwards 5 times, highlighting the strong emotions of the operators which was combined with considerable uncertainty about the future. The result was an outburst of erratic volatility for 6 days. Eventually negativity prevailed and the average was deeply abandoned by an index that became strongly bearish.
Now we are back there. As news of the decrease in the aggressiveness of the virus in the West has emerged, severe lockdown rules have eased in several states and above all have spilled over into the financial markets (less in the real economy, but this is not new. ) fiscal and monetary support measures by governments and central banks never seen before and frankly exaggerated (triple the damage that is estimated to cause the recession), the magic pipers of the rise have slowly brought back the mice of the investment towards the paradise and yesterday came the first contact with the barrier that separates good from bad.
Now the real battle begins. If the strong hands are going to force the hand and give a bullish impulse capable of attracting the mass and the algorithms of the automatic systems, to restore the underlying upward trend, as if the virus has never been seen, they will have to commit themselves thoroughly and bring out a lot of money, as the bears here will sprout like mushrooms, since the numbers of the real economy say that the virus has not only seen itself, but has caused damage that cannot be ignored.
Who will win the battle? We can probably try the answer no earlier than the end of the week.