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China Coronavirus Scare Sets the Shanghai Composite Index Off to a Bullish Start

Over the weekend, there were reports which hinted that the China coronavirus was spreading. The Wuhan Municipal Health Commission reported that there were 136 new cases of pneumonia. Outside of the province from which the virus originated, Beijing reported two new cases. There was also one from Guangdong. The disease has now also been responsible for the death of three people.

The China coronavirus causes pneumonia similar to Severe Acute Respiratory Syndrome (SARS) which killed roughly 800 people during its outbreak in 2000 to 2003.

People have now been taking extra precautions. With the Chinese New Year happening this weekend, people are expected to travel more which could make it easier for the virus to spread. Sales of medicine have picked up and pharmaceutical companies have been seeing gains in their stocks. For instance, Shandong Lukang Pharmaceutical Co. saw a 10.04% increase in its stock price today. It was the third-best performer on the Shanghai Composite Index. Shanghai Dragon Corp also saw the same gains as its sales of face masks skyrocketed.

Read our Best Trading Ideas for 2020.

Shanghai Composite Index Analysis

Consequently, these gains among companies in the health industry have helped the Shanghai Composite Index trade higher today. It closed 5.379 points or 0.17% higher at 3,095.708.

On the daily time frame, the stock index found enough bids to bounce off support at the rising trend line (from connecting the lows of December 3 and December 23). The Shanghai Composite Index will now need to clear its highs at 3,106.800 where it peaked on January 6. If it does not, a lower high would be enough for head and shoulders pattern to form. When you enroll to our forex trading course, you will learn that the chart pattern is considered as a bearish indicator.

On the other hand, if the index trades beyond that price, the next near-term resistance will be at 3,127.169 where the index peaked on January 14.

Now the question is, will the coronavirus scare last long enough for the Shanghai Composite Index to extend its gains?

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