1. Moving the markets

The Russian-Ukraine saber rattling shifted into overdrive and pulled equities down sharply with the Dow down over 850 points at its low of the session.

As if by magic, a stunning afternoon comeback managed to wipe out all the morning’s losses with the major indexes ending in the green, as the Nasdaq ruled supreme, and the always present short-squeeze lent its usual assist.  

Apparently, traders and algo alike ignored warnings such as the one from Wells Fargo’s analyst “now is not a time to be buying the dip in stocks.” It’s difficult to fathom that the so-called worst invasion since WW 2 is a buying opportunity, as ZH put it.

Nomura’s Charlie McElligott cleared things up by explaining it this way:

If it’s hedge unwinds, not optimism that is driving this, it may leave us open to pullback thereafter unless flows sustain.

Roundtripping in a wild fashion was Crude Oil, which exploded to over $100 but gave back most of its gains. Gold followed suit and reversed its early advances by losing the $1,900 level.

Bond yields enjoyed the rollercoaster ride as well but, while serving as a “safe haven” first (lower yields), then spiking and thereby covering an unusual broad trading range.

Makes you wonder if tomorrow will bring joy or revulsion.

1. Moving the markets

Finally, after several weeks of bouncing above and below my domestic trend line, which separates bullish from bearish territory, today’s downside piercing was enough to confirm that the existing “Buy” cycle had finally come to an end. For tracking purposes, the effective date will be tomorrow, February 24^th.

This shift to “Sell” mode only affects “broadly diversified domestic equity ETFs and mutual funds.” Sector and County funds shown in my Thursday StatSheet remain in “selective” Buy mode, meaning they are in bullish territory, if they remain above their respective trend lines (%M/A).

As posted yesterday, in my advisor practice we had only minimal domestic exposure left, the main position of which I already liquidated earlier in the session. It seemed that, due to all the geopolitical distractions, traders and algos alike had not realized that the most widely followed indicator, the S&P 500, had not only dropped below its 200-day M/A a few days ago but also into “correction” territory.

Of course, in this topsy turvy world we are living in, there is no way to assess how long we will remain out of the domestic market. In the meantime, however, I have shifted some assets into a few sector funds, which have been performing well and look to do so in the future given the continuing rise of inflation along with ever-increasing commodity and energy prices.

The major indexes, while holding up initially, plunged into the close and reached their lowest level in 2022. In a more shocking context, ZeroHedge reported that SmallCaps have now given up ALL of 2021’s gains (now down 1.4% from 12/31/20), and the Nasdaq is only up 1% from the end of 2020. Ouch! So much for Buy and Hold when the bear strikes.

Despite the sell-off in stocks, bond yields rose thereby inflicting more pain on those investors who hold bonds as “protection” against equity weakness. The US Dollar whipsawed and ended about unchanged. To no surprise, gold managed to eke out another gain, albeit a small one.  

In my mind, the open question is this one: Will this be the beginning of the long-overdue pricking of the stock market bubble, or will the Fed try to pull a rabbit of its hat—again?

1. Moving the markets

Given the overall geopolitical tensions, some real and some made up, I would have expected the markets to take a steeper dive. However, the pullback was slow and steady with no panic selling, but a melt-up attempt during the last hour hit the skids.

The major indexes gave back over 1% with the S&P 500 faring the best, despite the fact that it has now dropped below its widely watched 200-day M/A by -3.44%, which is a bearish signal. Apparently, traders and algos alike chose to ignore it for the time being.

Much jawboning by the current administration about sanctions on Russian banks and wealthy individuals occupied the MSM headlines, which was repeated in solidarity by the U.K. government.

While the Russia-Ukraine conflict will occupy center stage for some time to come, it does not look to have war implications, which is why the markets remained calm, but that could change in coming weeks.

After all, there are many more items on the economic menu that have the power to affect stocks negatively. Higher interest rates, surging inflation affecting oil and food prices, along with shortages (truckers), are just a few that to me may have more of a market impact than what happens in Ukraine.

Bond yields went sideways to slightly higher, which was imitated by a directionless US Dollar, while oil prices spiked and look to be heading towards the $100 level. Gold regained the $1,900 point by advancing just a tad for the session.  

See section 3 below regarding the update about our Trend Tracking Indexes (TTIs).