Stock markets have been bullish since the beginning of last year. German index DAX has been finding support at moving averages on the daily chart during this time, particularly the 50 SMA (yellow) and the 100 SMA (green), on the daily chart.

We saw a deep pullback lower in summer last year, as the trade war escalated further and the sentiment turned negative in financial markets. But, the bullish trend resumed again, as US and China headed towards a partial trade deal. But, coronavirus is playing with markets and it induced another decent pullback at the end of January, when it exploded in China.

The sentiment started to improve, as the virus was being contained mainly inside China, and to a lesser degree in the surrounding countries. But, the outbreak in Italy over the weekend has sparked fears that it might turn into a pandemic in Europe as well.

As a result, European stock markets have turned bearish today and DAX has reversed and fallen nearly 800 points lower. Now, DAX is trading around the 100 SMA on the daily chart. It seems like traders are waiting to see if Italian authorities will keep coronavirus within the country.

If it doesn’t spread too much in Italy, then the 100 SMA might turn into support again and we will likely see a bounce off from here. If the virus spreads fast, then the decline will continue. So, we have to keep an eye on coronavirus cases in Italy, in order to trade stock markets, because there’s great potential on a long trade, if the situation improves that is.