Things you need to know
- So, Vlad finally did it – and on President’s Day no less….
- Joey and other world leaders cry ‘Foul Ball’
- Manny making it clear that diplomacy is still on the table
- Vlad sent ‘Peacekeepers’ into Eastern Ukraine.
- Oil – trading up 4%
- Try the Moscow Mule
** My appearance on the Claman Countdown yesterday with Ashley Webster and The Cow Guy – Scott Shellady
https://video.foxbusiness.com/v/6298412047001#sp=show-clips
Look at that – I take a couple of days off and it all goes to hell in a handbasket!
Last time we spoke was one week ago when the S&P was trading at 4471 and the Nasdaq was at 14,139….by Friday evening of the long weekend – the S&P ended the day 4,348 (2.7%) and the Nasdaq closed at 13,548. (4.1%). The Dow ended the day at 34,079 down 0.6%, the Russell at 2009 down 0.9%, and the Dow Transports at 14,970 down 0.2%. The talk all week and all day by the administration was that Russia was on the verge of invading, comments like ‘at any moment’, ‘imminent’ and ‘without doubt’ all sending stocks lower as the tension in the room got thicker and thicker….Algo’s going into sell mode as the indexes have all now pierced long term trendline supports – setting us up for a ‘re-test’ of the January 24th lows.
Over the long weekend – Vlad did as promised after holding the world hostage to the unfolding crisis in the Ukraine – he made the first move. On late Monday afternoon (after the Olympic closing ceremonies were nothing but a distant memory and Vlad got himself (extra) short the market) – Vlad took to the airwaves and announced that he was recognizing two ‘self-proclaimed’ separatists Republics in Eastern Ukraine…. two regions that have been fighting for independence from Ukraine since 2014….all with Russian support (wink wink). Why do I say this? Because Vlad has been telling the world (since 2014) he was not involved, he was not instigating nor was he supporting them – then yesterday – he decided that he must recognize their request to be independent (and now part of the Russian empire) – and after he did so, he then ordered his ‘Peace Keeping forces’ to go into those breakaway regions to help restore the peace. At the same time – he demanded that the Ukrainian gov’t stop all military action immediately or bear full responsibility for what happens next. (Because those two regions are no longer Ukrainian territory as far as Vlad is concerned – so any military action by the Ukrainians is now an assault on Moscow -do you see how this is going?)
This leaves Joey, Manny (French President), Olaf (German Chancellor), Mario (Italian PM) and the others having to decide what to do next. All I can say is – how happy is Angie (Merkel) right now? Immediately – there were cries of foul play. Manny (Macron) calls it a violation of commitments. Boris (Johnson) set to impose sanctions upon Russia this morning. Joey plans to stop US trade with those two separatists’ regions (oh that will hurt) and the EU is set to meet to discuss sanctions in response to Vlad’s decree. The ultimate issue for the EU is that any sanctions would have to be unanimously adopted by the entire block – How do you think that’s gonna work out? Expect energy and food prices in Europe to skyrocket in the weeks ahead if Vlad continues to push.
EU chiefs Ursula von de Leyen and Charlie Michel calling this a ‘blatant violation of the Minsk Agreements’
(The Minsk agreements – signed on September 5th, 2014 – forced Russia to recognize and accept the fact that these two very regions belong to Ukraine – no matter that they were attempting to secede– so yesterday’s decree clearly violates this agreement.)
US markets were closed yesterday due to the President’s Day Holiday – so US investors have not had a chance to participate in the latest news until today. Last night when the news broke – US futures plunged, and they are lower this morning as investors prepare for what is expected to be a volatile time.
Now, do not look at US economic data or earnings data to drive the market this week…. global market activity will be driven by the latest geo-political events unfolding across the world stage. And while there will be some FED speak, investors have already priced that move in….a move of 50 bps would not send markets lower at this point….and might be seen as a positive.
As expected, – Asian markets opened and traded lower, all closing down between 1% – 2.5%. This on top of the losses suffered on recently. Curiously – Xi Xi has been mum on the action – waiting to see how the world responds as he contemplates taking Taiwan. Taking Taiwan now, while Vlad is trying to take Ukraine will create an even bigger global geo-political crisis and would send stocks reeling. Vlad’s bullying will appear like nothing more than a pimple on Xi Xi’s …… (you fill it in).
European stocks have started the day in negative territory – at 5 am – markets across the region were down between 0.5% – 1.2% – but in the last 60 mins – those markets have all moved into positive territory…..The UK is now up on the day +0.40%, CAC 40 +0.2%, DAX +0.1%, EUROSTOXX +0.3%, SPAIN +0.4% and ITALY +0.10%. Olaf Sholz – German Chancellor has now ordered the halt for approvals of Nord Stream 2 – the Russian energy pipeline that travels from Russia beneath the Black Sea to Germany – Now this is a bold move, as it will directly impact energy prices across Europe. Let’s see what Vlad does now.
US futures which plunged lower last night have stabilized this morning – but it is early, the sun has not risen yet, when I look out the window, it is still dark. Dow futures which were down 450 pts or 1.4% last night are now off by only 70 pts or 0.2%, the S&P was off 75 pts or 1.75% is now down 9 pts or 0.23%, the Nasdaq got absolutely slammed – down 350 pts or 2.45% is now off by 90 pts or 0.65% and the Russell shaved off 36 pts or 1.8% is now down 4 pts or 0.15%.
Now why should futures be rallying back off last nights lows? Well, there are a couple of reasons. One is that this skirmish in the eastern parts of Ukraine has been going on for 8 years now. Pro-Russian troublemakers (supported by Moscow) have been fighting Ukrainian forces since 2014, thousands have already died – so the fact that now Vlad wants to recognize their fight and recognize their independence is not surprising. Two – many are still believing that there is a diplomatic solution – but it must include a way for everyone to save face. Vlad must feel like he was noticed. Europe must feel like they weren’t bullied, NATO needs to back off and Ukraine can remain independent (for now).
Remember – I have been saying that I do not think this will turn out to be an invasion (now). In the end, I think it gets resolved diplomatically all while Vlad goes from being short to being long….ahead of his announcement.
The VIX (Fear index) shot higher by 13% at 31.80 and is now trading up by 6% at 29.55. The VIXY ETF (Proshares short-term ETF) is up 28% since last week and going higher today. And the triple leveraged S&P short – SPXS – which was up 2% on Friday was quoted up another 50 cts or 3% this morning and is now FLAT…. the other ETF Non-levered Shorts also moved up on Friday- DOG +0.6%, PSQ +1.2% and the SH +0.5% and if the tone this morning remains muted then I would expect them to back off. The value trade – SPYV down 0.4% while growth – SPYG was off 1%. Consumer Staples – XLP + 0.2% was the only sector up on Friday. Healthcare, Real Estate, Consumer Discretionary and Tech – all led the way lower.
Oil – is surging on the back of this latest Russian move…. WTI is now trading up 4.4% or $4/barrel at $95.02 (after trading as high as $96). Forget any fundamental analysis – not relevant right now…. Oil will move up and thru $100/barrel as Russia continues to move. And that is good for Russia as well as OPEC…. (Remember how Russia and OPEC were choking on oil when it was trading in the mid $30’s during the prior administration?) So, anything Vlad can do to push oil up and reap the benefits is what he will do. It is funny though, how the Bidens energy policy has crippled the US oil industry leaving Joey to beg OPEC and Russia to pump even more to help bring prices down…. Yes, how’s that working?
The American Association of Individual Investors (AAII) has bears at 43% and Bulls coming it at 19% – which means what? It means that we are gonna get a strong snap back rally – AT SOME POINT – (and it could be today…) Why? Because when bearish sentiment gets this out of whack it is a ‘contra indicator’. But you need to pay attention to the noise to help figure out when that contrary opinion is about to happen. Again, the geo-political noise will cloud the action until we get more clarity.
And while there is some economic data out today – the most important – on a normal day – would be Manufacturing PMI, Services PMI and the Richmond Fed Manufacturing Index – but as I said – I don’t expect that anyone will be paying much attention.
Crypto’s continue to get hammered……Bitcoin falling from $42,100 last Tuesday to $37k this morning…. a 14% decline in one week – Will it test $30k – where it needs to find support. A failure there could see Bitcoin trade down to $10k before it finds any real support at all. The surge from $10k to $40k (in 2020) was swift and the retreat to $30k was equally swift. The move from $30k to $60k while exciting saw it retest $30k in a few months. Then the move from $30k to $70k happened over 6 months in 2021 only to have it slice 47% of its value in just 4 months leaving us in the Netherlands – as it struggles to find stability. $30k is KEY……just sayin’. Ethereum is down 10% over the last week – trading at $2,550 this morning. $2300 is KEY for Ethereum…. A failure there could see it trade down to $1500.
The S&P closed at 4348 down 32 pts leaving us ready to retest the January 24th lows of 4,222…. or there abouts. (That’s a 2.8% move lower from here – which would leave the S&P on the cusp of an official correction – defined by down 10%) We have been talking about this….so now it is happening….no one should be surprised. If you are a long only investor – now is the time for patience – wait for a bit more clarity before you commit more money…..…. if you play it from both sides, then just make sure you are watching your ‘short’ hedges…the tone can change quickly, and we have just seen that overnight.
Remember – stick to the plan. Call me to discuss.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Moscow Mule
Now I could have given you a White, Black or Red Russian – but a Mule is also defined as an A.. – Capisce? (Rhymes with BASS)
This is simple to make – You need Vodka, Ginger Beer, Lime Juice and Ice cubes.
You make this drink in a copper mug – because it holds the cold better.
In the mug – add the Ice (2 block cubes would be perfect). Add in ¼ c of vodka, 1 tbsp. of lime juice, and ½ c of ginger beer. You can garnish with a slice of lime or a fresh mint sprig.
Buon Appetito.
