There is no doubt that the response of equity markets around the world will depend on the level of recovery in the international economy. To the point that the different financial analysts propose three basic scenarios: V, U or L. Which will ultimately determine where the stock market can go in the next few months or even years. Without so far there is any certainty about the degree that it can emerge in global economies. But in any case, it can give you the odd clue to develop a suitable investment strategy, at least not to lose money in these tough months that there are still less.
From this point of view, it will be absolutely necessary for you to know what these recovery levels consist of, which are represented by the letters V, U or L. Because depending on whether it is one or the other, it will lead to a different behavior in the equity markets. Which in practice means many thousands and thousands of euros in open operations in the financial markets. It is not the same, therefore, that there is a recovery in the economy in the form of a V and an L. Among other reasons, because the answers that should be given would be substantially different, both from the monetary and fiscal point of view.
While on the other hand, it is also necessary to emphasize the fact that the recovery level it will be very important so that stock market losses do not rise in the coming months. Or on the contrary, it can raise its main stock indices. This is one of the reasons why we must be very attentive to what will be the way out of this new scenario presented by the international economy. Therefore, the recovery in V, U or L will be decisive to see what the response of the stock markets will be, both in our country and outside our borders.
Recovery in V
V-shaped is the model most desired by everyone, not only by investors in the stock market because it indicates that its impact would not be very high. If not, on the contrary, it would show a very clear round-trip figure that would help equity markets to recover in a very short space of time. Well, in this case this figure occurs when an abrupt stop in the economy is generated but the return to normality is also fast. It is the most dynamic recovery scenario of all and does not usually have great damages on small and medium investors, especially those who direct their movements to the medium and especially long term.
On the other hand, it must also be emphasized that from now on the fact that the most optimistic forecasts are based on the assumption that only a few weeks of confinement will be necessary is very relevant. Although it is more and more frequent that it is doubted that this scenario will be fulfilled in the end because the virus has spread with great force in much of the planet. Due in a certain way to the fact that the state of alarm has been extended in Spain and this is a fact that goes against the fact that it occurs in the form of a V that is the most desired by all financial agents. With more and more doubts about its implantation in the productive fabric of the countries of the planet.
Recovery in U
These are the most probable scenarios and those handled by financial analysts since it is that in the end the economic indicators they take longer to reach pre-recession levels. And it is the one that the majority of experts who may emerge when this tremendous health pandemic ends. Where some of these financial agents are considering a global recovery in U, although the flat phase could remain for a while. Because in effect, one of the keys to this trend is the period that the flat phase will last since it can be very flexible in the period of permanence and that can affect small and medium investors in one way or another.
As well as the fact that in this specific scenario it could generate that the coordinated response of the Central Banks and an aggressive fiscal reaction by the states would help to recover growth in the fourth quarter of 2020. Whenever it is in the U-shaped rally. Intermediate on the impact on equity markets around the world. Beyond the fact that the occasional rebound of a certain consistency may occur and that they are sure to occur in the coming days and weeks. Of course, it is not the best scenario for investors, but there are other worse ones, as we will show below.
Recovery in L
It is the worst scenario of all and the most feared by small and medium investors. Among other reasons, because it does not produce the long-awaited economic recovery since, after all, this figure represents a recession in the economy and its subsequent recovery. It is very worrying because the recovery of macroeconomic indicators such as the employment or GDP it can last for years, or even decades. This is reason more than enough because it implies a recession on a continuous basis and as a consequence of it also a more worrying recovery. To the point that it can affect the spread of panic, not only among investors, but also among citizens in general.
The recovery in L would be especially damaging to interests in equity markets. Among other reasons, because the stock markets may continue to plummet for months or even years as there is no way out of this worrying scenario for everyone. It therefore has nothing to do with recovery in V or U because its implications are substantially different even in compliance periods. Because at the end of the day what you are telling us is that the economic crisis is going to last much longer than expected from the beginning. With a serious impact on the portfolios of small and medium investors.
Upcoming macro data
While on the other hand, it should also be noted that at this time it is still not known with certainty what the scope of this crisis will be. And this doubt is hurting the evolution of equity markets. Because indeed, it cannot be forgotten that one of the greatest enemies of investment are the doubts that can be generated from these moments. To the point that it may be a signal for further declines in stocks around the world, at least in the shortest term. Where, it can not be doubted that the operations that ultimately determine the success or not in investments in the stock market materialize through sales.
Then we will have to be very attentive to what the macro data can tell us in the coming weeks. Because they will give the odd clue about the level of recovery in economies around the world. Because they are models that vary from one system to another or form in the terminal development. As well as the fact that it will ultimately determine the results of our operations in the equity markets. In this sense, very soon we will have the odd sign that tells us where we are going in this state of exception.
Watch out for gaps in the charts
Of greater credibility are another series of signals that indicate the opportune moment to buy or sell on the stock market. One of these signals is the gaps, which in a general way, is usually defined as the area or price range in which no operation has taken place. For example, in a Uptrend we would talk about a gap in a daily chart when the low of the lower shadow of one day is above the high of the shadow of the previous day. In a downtrend the maximum of the shadow of one day would be lower than the minimum of the shadow of the previous day.
In this line, for an upward gap to develop on a weekly or monthly chart, it would be necessary for the lowest level recorded during a week or month to be higher than the maximum reached the previous week or month respectively. But it should also be noted that there are other types of gaps that appear between the closing and the daily opening, since there are many of them are generated on the same day and go unnoticed by most investors. These gaps can be of great technical importance and often provide more information than the other gaps.