With news of the virus spreading concern over the price action on several commodities needs to be addressed. First no one knows how far the virus will spread at numbers of casualties and infected continue to rise and the W.H.O. has not declared an international virus alarm. However, we have seen equities get hit with the MSCI China Index down over 10% on the day. Bond futures continue to rally, and casinos, hotels and airlines have all declined during the session.
When looking back at 2002-2003 SARS outbreak we saw jet fuel demand drop 170,000 barrels/day and the total demand drop over 250,000 barrels/day. Since that time, air travel has nearly doubled and with the Chinese New Year on Saturday, we could see this number slump even further.
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With the sharp break in March futures over the past four sessions, stochastics and MACD have pushed deeper into oversold territory indicating that the market has gone into a bear trend. First level of support is now closer to $52.50 and the average true range has now run up to $1.85 indicating that volatility has exploded. Continue to attack the downside and consider longer dated call options as a partial hedge against any potential geopolitical risk.
Good luck and good trading,
Chief Market Strategist
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