Things you need to know 

• Vlad calls for $300 oil! Perfect for financing his terrorist organization
• Stocks test and pierce the Jan 24^th lows – putting Feb 24^th in plain view
• Food and precious metal commodities continue to advance
• European markets are higher and US futures following suit as it feels like a bounce off an oversold condition
• US now talking to Iran and Venezuela about supplying more oil to the markets
• Try the Gemelli w/Roasted Butternut Squash Sauce

Stocks extend declines – some might say ‘tumble’ while others refer to it as a blood bath, as rising costs on everything continue to take their toll on investors….Stocks are now off significantly……the Nasdaq and the Russell are now both officially in bear market territory – down 20.5% off their highs of November 2021.  Now yes, many of the sexy high growth tech names have been in bear market territory for a while now, but until the index enters the fray – we can still hope that it is nothing more than a correction…. but that is beginning to get old now.  By the end of the day – the Dow gave back 2.4% or 800 pts, the S&Ps choked up 3% or 128 pts, the Nasdaq gave back 3.6% or 483 pts, the Russell lost 2.5% or 49 pts and the Transports gave up nearly 4% or a whopping 600 pts…. (think surging energy/gas/diesel prices).   If you’re keeping track – every index is now in correction territory for 2022.  YTD – the Dow is down 10%, the S&P’s off by 12%, the Nasdaq down by 18%, the Russell off by 13% and the Transports down by 11%.

Airlines represented by the JETS ETF – fell 11% during the session….and cruise/hotels and airlines represented by the Sonicshares TRYP ETF fell by 8.9%.   Housing got clobbered falling 5.4%, Retail took it on the chin as well – falling 4.4% while Consumer Discretionary – XLY fell by 5% leaving both down 20% ytd….Now remember – those are discretionary names….items that get cut out of the family budget when the sh*t hits the fan……and it is hitting the fan…..Consumer Staples on the other hand did fall by 1.8% but are only down by 3% ytd.  Why?  Because they are staples, it is the stuff you need, it is the stores you will go to – think of names like: JNJ, PG, GIS, WMT, COST, CL – they are known as ‘defensive’ names.

Defensive names are different than ‘Defense and Aerospace’ names…which are also a good place to find shelter from the storm.  The XAR – S&P Aerospace and Defense ETF is up 8% ytd – names in the ETF include: LMT, NOC, LHX, GD, RTX and HII…. some of these names are up 25%- 35% in the last 3 weeks alone – Capisce?

Utilities and Energy were the only two sectors that ended in the green up 1.3% and 1.5% respectively – other than the contra plays…. the ETF’s that you buy to ‘get short’ the market…. the DOG added 2.3% up 9,5% ytd, the PSQ added 3.6% now up 20% ytd and the SH added 3% up 12% ytd.  If you bet on the 3x leveraged ETF’s you either made out like a bandit or you suffered death by one thousand cuts.  The SPXS (Direxion 3x short ETF) rose by 8.9% and is now up 38% ytd while the SPXL (Direxion 3x long ETF) fell by 8.9% and is now down 33%.  and Cathie Woods’s ARKK disruptor fell another 3.6% – leaving it down 38% ytd, while the contra ETF – SARK rose by the same amount leaving it up 48% ytd.

It is nothing short of a disaster on a range of fronts…. the focus clearly on what the geo-political crisis will do to the global balance of power along with the food and energy supply chain across Europe and the world.  Add in what spiking inflation is doing to the state of the union never mind what the next move from the FED will be.  Many now saying that under the geo-political circumstances – they don’t see how the FED can move on rates, while other are saying that they don’t see how the FED cannot move on rates.  In any event the volatility that we have been discussing since the 4^th quarter is here to stay for a bit. 

Yesterday I warned that no one should be surprised if we re-tested the January 24^th low of 4221 during the day….and bingo – guess what….at 2:55 pm – we not only tested it, but we breached it to end the day at 4201 and that now puts the February 24^th low of 4114 in the bull’s eye.

Economic data points mean nothing at the moment in terms of market action, the algo’s responding only to trendlines and mathematical formulas that define how they function….and with the January 24^th low now re-breached – the algo’s will force a test of the February low.  And that will be key…. a failure to hold at that level will see the S&P tumble towards 3850.

Utilities, precious metals, and US treasuries remain the true ‘safe haven’ plays.  Crypto’s are not proving to be safe at all –Where is Mikey Novogratz and all of the other ‘crypto bulls’ that have been telling us that Bitcoin is the NEW gold, it is the new safe haven….the guys that supposedly ‘went all in’ and had been screaming for $500k bitcoin by the end of the year…..Not sure how that is going to work out, but my gut says not happening.

Oil pierced $125/barrel leaving it up 37% since Vlad invaded Ukraine and this morning Vlad says that the see’s oil going to $300 barrel before this is over.  (Now he is an oil analyst!).   Wheat hits ‘limit up’ again and is now trading at $12.94/ct a bushel and is up 45% since February 17^th……Corn and Soybeans – Yup, they are up too….and dramatically…. Corn up 22% in 3 weeks now trading at $7.45/bushel while Soybeans are up 10% during the same period.  And overnight the LME (London Metal Exchange) halted trading in Nickel after an unprecedented spike of 250% over 2 days brought havoc to that market. (Think supplies from Russia and negative bets turned sour).  10 yr. treasuries are now up 16% since the invasion sending yields plunging from 2.1% in mid-February to end the day yesterday yielding 1.76%.  Gold was up another $4 to end the day snuggling up against $2k/oz and is now up 8% since February 17^th.   Silver up 10% and Palladium up 35% in the last 3 weeks.  All this as the world struggles with what to do with Vlad….and what to do about the disruption he is causing across global markets in addition to the death and destruction he is causing across Ukraine never mind his other possible intentions. 

Sentiment is negative and the buy the dippers are exhausted of ‘buying the dip’.  There is no economic data today to change the subject, but tomorrow does bring the all-important CPI (Consumer Price Index) report…and the estimates call for even stronger inflationary numbers…even before we begin to see the effects of the Russian/Ukraine crisis.  Next week we will get prices at the Producer Level in what is known as the PPI report and that one is expected to have a 10 print on it….

The 10 yr. treasury is down this morning sending its yield up by 6 bps to 1.83%.  The VIX remains elevated but is finding some selling pressure as US futures rise.    The commodity complex which includes – precious metals and food along with energy also continues to advance up 3.5% at 6 am.   WTI (West Texas Intermediate) trading at $122/barrel and gasoline at the pump is anywhere from $4 – $7 depending on where you are all while the US is talking to both Iran and Venezuela about supplying more oil to the markets. Did you get that?  Iran and Venezuela are who the administration is reaching out to.  Ok?

European markets are also up as the whiplash continues…. talk of banning imports of both Russian oil and natural gas are front and center.  Add in the loss of so much wheat, corn, and soybeans (Ukraine a big producer) poses a great risk of ‘stagflation’ across the Eurozone. Today’s advance feels more like a bounce off of yesterday 3%+ declines. At 5:30 am – markets across the region are up between 1%- 2%.

This morning US futures are all over the place…. significantly lower overnight, turned into early morning gains at 6 am. Dow futures are up 90 pts, S&P’s up 16, Nasdaq up 25 and the Russell is up 15.

In the end – surging oil and commodity prices along with the geo-political unrest threaten to unleash more volatility in the days ahead and stocks are still in a downward trend.   We are just days away from a death cross – that is when the down trending 50 dma pierces the rising 200 dma…. indicating the potential for a bigger sell-off….

Crypto’s which were supposed to be the NEW safe haven play and inflation hedge – are proving to be neither…Bitcoin is trading at $38,500 while Ethereum is trading at $2,550 down from $2800 last week.

The S&P ended the day down 128 pts….to end the day on its low at 4200. We are now in the 4114/4460 trading range.  4114 is key to watch…. any advance will most likely be met with significant resistance unless of course there is a change in the narrative.  Any chance that Ukraine gives up and accepts the terms of disengagement will take the pressure off the markets across the board.  I just don’t see that happening right now….do you?
Take Good Care

Chief Market Strategist
kpolcari@slatestone.com

Gemelli w/Roasted Butternut Squash

This is easy to make and makes a great dish for the first course dinner party you are going to throw.  It presents beautifully on the plate and would be an unexpected surprise to your guests…. – No tomatoes – just garlic, sweet butternut squash, a bit of half and half, chicken or vegetable stock, sage, toasted walnuts and Parmegiana cheese.
 
Place you peeled and cubed butternut squash in a baking dish and season with S&P, fresh garlic, and dried sage – toss with oil.  Do not drown in oil – just enough to coat the squash.

Roast in the oven on like 375 – 400 degrees – making sure to turn at least once – this part should take about 35 mins…. but use a fork to test the doneness of the squash.   Once cooked – puree in the food processor…add 1 cup of 1/2 & 1/2 (or lite cream) and 1 cup of chicken stock.   Taste and season with a bit more s&p if you need to.

Bring a pot of salted water to a rolling boil…add pasta – cook until aldente – 8/10 mins…. Strain pasta – always reserving a mugful of the pasta water…. return to pot – add back a bit of the pasta water and toss – Now add butternut squash sauce.  Toss, add grated parmegiana toss again.  Serve immediately in warmed bowls adorned with crushed toasted walnuts.

Buon Appetito.