Overview
As the President of Ukraine said, Russia introduced a new iron curtain into Europe this week.
The markets reversed impressively, and another key low is in place. The key S&P-500 low (4114) was only about 1.5% above the range we identified last week (4050).
The invasion probably nudges the FOMC towards 25-bp moves.
A sustained rally is possible, but we will be dependent on news headlines for at least the next few days and weeks.
Performance
The S&P-500 sold off ~ 5% from last Friday’s close to the intra-day low on Thursday but then rallied to close back above last Friday’s close, for a 0.82% gain for the week. The market was relieved that Russian sanctions excluded energy and agricultural products, and hence their impact could be minor. The market also concluded that the hostilities would nudge the FOMC away from a 50-bp increase and toward steady 25-bp increases in the Fed Funds rate. Next week features testimony from the Fed Chair and the jobs report on Friday, and hence the market will have many headlines to focus on besides Ukraine.
The overall net bull-bear balance ended the week above zero, but we need more follow-through next week to actually signal a trend change. Observe how we see short-lived spiked into positive territory during major downtrends.
The S&P-500 chart shows the current state of play. Last week we showed the break below the symmetrical triangular consolidation. The down-trend line from early January is still in force, and we must break above it to signal a change. This week's new low is a Fibonacci retracement of the past year’s price range, so we can certainly view it as another key low. There is strong resistance near 4600, and much of the news needs to break favorably (the invasion, economic data, and FOMC statements) for the rally to continue. The optimistic view is that so much bad news is baked in that a decent rally attempt is due.
We look at the VIX index below for further confirmation, which peaked near recent highs and retreated. So the bullish case for a rally in March-April rests on the S&P-500 having weathered multiple storms while exceeding a 10% retracement. But it is fair to expect elevated volatility for at least the next 2-3 weeks.
Wrap-up
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Disclaimer
And now for some housekeeping. This publication is for “edutainment,” education, information, and entertainment purposes only. It is not to be construed as investment advice. Past performance is not necessarily indicative of future results. Our disclaimer at chandeindicators.com is included herein by reference.