Intraday Market Thoughts

Capitulation or Adjustment?

by Ashraf Laidi
Feb 28, 2020 1:32

The first signs of capitulation showed emerged in a big way on Thursday as major US major indices plunged 4.4%, posting their biggest 1-day percentage drop since 2011, bringing the week so far to -11%, the worst weekly decline since October 2008. The combination of Microsoft downgrades triggering corporate worries with accelerating tumble in oil shedding 12% in 4 days triggered broadening losses in tech and energy. A new Premium video has been issued below, covering why/how our indices were stopped out by 20 pips before reaching the targets (DAX) and the DOW long after the London close, which  targeted 470 pts, only to miss the final target by 35 pts before getting stopped out. I cover my take on FX and indices and the implications for Friday's trades. Will central banks step in before the weekend? My take below.

As for what's next, we could make all sorts of profound arguments about how central bank liquidity injections or rate cuts won't address the economic & market fallout of a virus outbreak in Europe and the US. Alternatively, we could approach the situation by asking “what would happen to the markets if no central bank policy response”. Their job is to safeguard the financial system after all. Some would GDP growth is doing OK and & jobs are solid, while markets are in need of a healthy correction … but 12% in 4 days is the stuff that could easily turn to 30% in two weeks in a world when passive ETFs must find liquidity & anyone can hit the sell button from anywhere not to mention algos. Don't forget that Fed funds futures are currently pricing three rate cuts by year-end.


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