Thursday's Market Minute: The Falling Knife

Global equity markets came under heavy selling pressure on massive volume this week as the world continues to grapple with the coronavirus.

S&P 500 futures are off about 9.6% from all-time highs on Feb. 20, with premarket trading currently pointing toward another red cash open today. Many traders are likely watching for support on the /ES at the 200-day SMA, which is approximately at 3050, as well as watching the RSI, which crossed into oversold territory earlier this week.

Today could force traders to decide whether this level represents a buying opportunity or further bearish price action. But other parts of the market are also looking soft, namely Dow and Russell 2000 futures. Both contracts fell below their own respective 200-day SMAs this week, as did Nikkei 225 and Emerging Market futures.

“Buy the Dip” becomes a very dangerous game at this point, as traders weigh whether they can catch this falling knife without getting cut. Although it may be tempting to look for a quick payday on a bounce, it is commonly advised to keep position sizes small and keep stop loss orders tight during times of great uncertainty like this.

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