Omicron Towers Over Markets

Benchmark global equities remain under heavy selling pressure this week as uncertainty over the new COVID strain, Omicron, continues to grip markets. Markets were roiled late last week in response to the first announcement upon the discovery of the new strain, which is thought to be more contagious and less responsive to vaccines than Delta and Beta. Initially this week, however, there was a pause in selling on Monday as world leaders urged caution, suggesting that it would take at least a few weeks before scientists can assess the real threat from the virus. However, with further cases popping up around the globe it seems that traders are acting ahead of the curve and squaring riskier positions.

Given the tightening restrictions in place across Europe ahead of the new strain’s emergence, traders sense that the months ahead (particularly for the West heading into winter) are looking perilous. Several countries have now closed their borders once again in a bid to curtail the spread of the virus with the US refusing to rule out further travel restrictions. For now, the market is clearly erring on the side of caution while it awaits further details around the new strain, suggesting that near term we are likely to see continued selling unless there is a major shift in the narrative around the new variant.

Technical Views


The near 8% breakdown below the rising channel has seen price plummeting back down to the 15078.83 level. While this level is holding as support for now, with both MACD and RSI bearish, there are clear downside risks towards the 14791.27 level next.


The sell off in the S&P has seen the market breaking down below the rising channel. However, for now, price is sitting in a block of consolidation at the foot of last week’s decline, having not yet broken the lows. With MACD and RSI both bearish, the focus is on a test of the 4545.25 and 4475.25 levels next.


The sell off in the FTSE has seen the market trading lower from around the 7250 level to current 7005 lows. For now, price is sitting atop the bull channel support and 6968.7 level. A break lower here, however, will open the way for a test of the 6832.2 level next.


The breakdown below the rising channel in the Nikkei has seen price moving down to test the 27422.9 level support, ahead of the pivotal 26932.1 level. This lower level is a major long term level and a break below there would be a strong, bearish development for the market.