NASDAQ 100 FORECAST: STOCKS PLUNGE ON CORONAVIRUS FEARS

After stumbling into the weekend, stocks suffered a massive gap lower to start the week with the Nasdaq plummeting more than -4% at the open. Early price moves on the S&P 500 and Dow Jones were even more historic as each posted their largest lower gaps in over 20 years. As we discussed last week, equity price action was becoming increasingly tenuous as gold mounted a bullish breakout higher and risk-sensitive currencies like the Australian Dollar edged lower.

NASDAQ 100 PRICE CHART: DAILY TIME FRAME (AUGUST 2015 – FEBRUARY 2020)

Gap measure percent in red, daily rate of change in blue

Still, the rally had proved resilient up to this point and further declines were not guaranteed but an uptick in coronavirus fears over the weekend seemingly sparked greater risk aversion and were largely to blame for Monday’s tragic opening. As the outbreak expands into a global issue, its economic impact will extend similarly. To that end, a worrisome uptick in confirmed cases in Italy, Iran and South Korea reveals the alarming ability of the virus to spread. Consequently, global travel is expected to slow, and airline stocks have reacted accordingly.

NASDAQ 100 PRICE CHART: 4 – HOUR TIME FRAME (DECEMBER – FEBRUARY)

Evidently, the damage is not limited to airline stocks as the tech-heavy Nasdaq led Monday’s declines and earnings expectations have been lowered across the board. With that in mind, it is difficult to ascertain the exact impact of the coronavirus because there are so few precedents and so many unknowns. This creates greater uncertainty for investors – something which most detest – and it could translate to prolonged volatility for the stock market in the days and weeks to come.

Either way, it seems the driving force behind both price action and sentiment is the virus, so further updates could prove crucial for the Nasdaq as it looks to hold above subsequent support. Similarly, various central bank officials from across the globe have begun to express potential monetary policy initiatives to combat the economic effects of the virus.