- DE30 declines for the third day, cooling off from the multi-month high
- Investors are concerned about the second wave of coronavirus in the US
- Lufthansa down 8% on job cuts announcement
The message from the FOMC yesterday was all clear – the US central bank is happy to tolerate any asset price bubbles for as long as inflation is low and unemployment rate is clearly above the long run “welcome” level of around 4%. Yet indices are tanking sharply today. Why? First of all, we saw euphoric gains on indices over the past 4 weeks and now that central banks did what they were asked of by the markets we could simply see some profit taking from this frenzy buying. There’s more to it though – the number of new daily COVID cases shot up to the fresh high of nearly 135k yesterday and while much of it is developing countries, there’s talk of the second wave in the US as some states opened prematurely (especially Texas and Arizona). Given that the number of companies announcing permanent job cuts is on the rise, this could be a moment of reckoning for investors and certainly a development worth tracking.
Technical Analysis:
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Create account Try a demo Download mobile app Download mobile appWe’ve seen a stunning recovery from the March sell-off that could be now depicted as completed 5-wave pattern. If so, the ABC correction should follow. The first leg could take us to around 11700 – this is also 1:1 relationship with the wave 4 from May. Obviously it is still early and “just a profit taking” scenario cannot be ruled out. If the ABC pattern is in play, we would be looking at a support just below 10800 (38,2% Fibo retracement of the rally).
The nearest support is around 11700 points. Source: xStation5
Company news:
Lufthansa (LHE.DE) is down some 8% today after the company said it would cut 22k of employees – or 16% of its total workforce. Half of those cuts will take place in Germany. Nevertheless, the stock is still more than 40% up from April low as the company sealed government aid. UBS downgraded the stock to “sell” from “buy” as it sees the company “losing money for years”. At present there’s only 1 “buy” recommendation among 27 analysts reporting to Bloomberg.
Continental (CON.DE) is among the laggards today. Company announced it’d cut cost mostly in Western Europe and could be forced to do more unless there’s meaningful by the end of this year.
