Market Update: 2/20/20 - The Coronavirus, RSI Divergence, and Gold

Sporadic news about the coronavirus and differing economic outlooks have created uncertainty about the future implications concerning market performance in 2020.

Starting with the coronavirus, markets have been trying to weigh the uncertain numbers coming from the WHO and how much the virus will hit corporate earnings. In a recent statement, Goldman Sachs analysts have warned investors that "we believe the greater risk is that the impact of the coronavirus on earnings may well be underestimated in current stock prices, suggesting that the risks of correction are high" (Source: the Goldman note). With the outbreak affecting more than 74,000 people and killing more than 2,100, I believe that a slowdown/ correction is more than warranted in US markets.

Taking a look at the DJX ETF that tracks the DJIA Index, RSI divergence on the 1Y: 1D chart at the $295.69 price point signals a red flag to investors (chart shown below). Though this may not be a trigger for an imminent selloff, at all-time highs, investors expect to see an RSI reading of 70 or higher. At the recent high, the RSI reading was only 62.3. This may not be a reason to panic but definitely something to monitor, watching the DJX and JPY closely as these are places where investors find safe haven and take their bids in uncertain times.

Lastly a discussion about gold, a safe investment during times of market uncertainty. Recently, gold's price level edged over its 2013 high and is now sitting at $1620/ oz. My phase into gold in the beginning of December at the $1462/ oz, and more recently at the $1568/ oz price point has highly supplemented my own portfolio and I think that the recent price behavior is suggestive of gold's strength in a portfolio when equity markets seem unfavorable.

1Y: 1D chart of DJX. Red arrows showing all-time high and correlating RSI divergence mentioned above.

Disclaimer: This is not meant to be investment advice. I am simply stating my own opinions and discussing them here.