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It didn't take long for the fast to fall by 3%, with the technical support index reaching around 3,250 levels, as we noted last week.
Now that the index has had critical levels of technical support a number of times, we wonder if the withdrawal may have already passed, despite the headlines of the spreading corona virus.
Some bet that the market will recover its losses. Options have recently taken place on the iShares MSCI Emerging Markets ETF (NYSE 🙂 and the iShares China ETF (NYSE :). The option activity for both ETF & # 39; s seemed to have increased over the last few days, indicating that the two ETF & # 39; s are rising in the coming weeks, and acts as a bet that is clearly against the background.
Finding strong support
They fell sharply from last Friday when the coronavirus heads first started to spread. It was not long before the index fell and fell by slightly more than 3% from the highs of January 22 to the lows of January 27. But the S&P 500 has found a significant level of technical support around the 3,245 level, which served as a base for the index. Investors have tested this level of support four times intraday since January 27.
(FEM options – Investing.com)
It seems that the general trend in the market has not been damaged either. The S&P 500 has been climbing steadily in a tight trade channel since the beginning of October and has essentially managed to maintain that trend line. Moreover, the relative strength index is higher than the lows of December 2018. It would indicate that a long-term momentum is favorable for rising markets.
(FXI Options – Investing.com)
Restore betting on the markets
Moreover, it seems that some traders are betting that emerging markets and Chinese markets are likely to recover quickly. On January 29, the outstanding interest for the EEM rose $ 45 on February 28, with almost 100,000 contracts. The data shows that contracts were purchased, with the trader paying around $ 0.35.
This means that for the buyer of the calls to make a profit, the EEM would have to rise to $ 45.35 or higher if he holds the contracts until the due date. That would yield a profit of around 5.5% compared to the current price of the EEM of around $ 43 on January 30.
In addition, the open interest rate for the FXI on March 20 saw $ 45 calls increase their open interest rate with more than 92,000 contracts on January 27. The data also shows that the contracts were traded at the ASK for around $ 0.50.
In this case, the ETF would have to rise to $ 45.50 or higher to make a profit if the buyer holds the contracts until the end of the term. The ETF should increase by around 12% compared to the current price of around $ 45.60.
The bets seem to indicate that some are seeing that the market recovers many, if not all, losses from the recent downdraft. It could even serve as a further confirmation that US stock markets will bounce over the coming days and resume their current upward trend, in line with technical charts.
Risks remain
However, there appears to be an imminent risk that is always present on the stock market. However, should prices turn around and fall below the S&P 500 level of 3.245, this would probably cause a crushing blow to the index, potentially lowering it to 3.150.
But for now it seems that the storm may already have blown in the short term.
