Has the Pandemic run its Course?

Most people would agree that the pandemic has become a game of political shuttlecock over the past couple of years. For those of us glued to every headline, the degree to which this polarisation has trickled down into its coverage is also quite self-evident.

In the financial media, we have the markets themselves to keep us honest, but sometimes where a story must be provided to explain every market gyration, we can sometimes see today’s rally being chalked up to fears of x-variant subsiding, and tomorrow’s dip to it re-emerging again.

As traders, our job is to cut through the coverage and try to identify how the markets are digesting these news items. After all, this is their fundamental function. Another thing we often look for as traders, particularly those who use technicals, is divergences Identifying when two things that usually move in step are somehow acting differently.

The swings between greed and fear since 2020 have been pronounced, all against a backdrop of pandemic waves and new variants. However, if you look at Google searches, March 2020 saw the first spike in Coronavirus-related searches, and August the peak. They have been in a downtrend ever since. Risk assets, on the other hand, bottomed in March of 2020 and have been on the rise since then.

At the time, the first three variants were designated by the WHO as alpha, beta and gamma, but were just collectively referred to as “COVID-19, “Coronavirus” or “SARS-CoV-2” in the media.

“Coronavirus” has been excluded above as a search term because it has a far higher search count and so obscures the other terms. Despite this, it follows a similar trend to the red line above.

As you can see, the only time the broader search term (red line) breaks the trend, is when the Delta variant emerges as a concern. They both break out together between August 1 and 7 before subsiding after Delta proved to be less of a threat than initially feared.

The little green line at the far right is an outlier in that Omicron searches have been rising, despite a broader trend of declining interest or concern about Covid-19. If we were to use the language of divergences in order to describe this, we’d say that searches for Omicron are making a higher high, despite the broader searches for Covid-19 and Coronavirus making lower highs on a continued downtrend.

With the broader search terms removed, we can see this trend in finer detail. The peak in global searches for “Omicron Variant” surpasses both June and August peaks for “Delta Variant” searches before quickly dropping way below those levels. Now, if Omicron really were to become a more pressing concern, then you’d expect the search terms to come back and make even higher highs, but that would be the most lagging of indicators for our purposes as traders.

What throws all the above into sharp relief are the above two weekly charts of the Nasdaq and the S&P 500 with the search dates marked on them. The only two occasions when search terms peaked without the two indices trading at all-time highs is, you guessed it, the original searches in March of 2020, and this new wave of Omicron coverage. Despite this, both indices have been respecting the 20-week average since recovering from the March 2020 crash on a slow and steady march up and to the right. That’s food for thought.

By Giles Coghlan, Chief Currency Analyst, HYCM

HYCM clients can trade a variety of indices including the S&P 500, the Nasdaq, and the Dow Jones Industrial Average, as well as 300+ instruments in commodities, forex, indices, stocks, and more.

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