Who knew war is good for the stock market? Russia invaded Ukraine and the markets zoomed higher since. The main thinking behind the ramp up is that increased gas and oil costs will drive inflation higher, slow the economy, and prevent the Federal Reserve from raising interest rates, or at least reduce the number of hikes.
Another theory is that prices got too low, option deltas became attractive and ignited a short-term, price recovery pop.
Whatever the reason, we are absolutely in uncertain times. The law of unintended consequences can come into play quickly and the world ends up in a place nobody thought was conceivable a few days ago. In the current environment, it is impossible to know what’s next and that’s generally not good for stock prices.
Here are some possible scenarios in our view:
1 – Peace talks between Russia and Ukraine work, the situation is resolved quickly, and we get a relief rally.
2 – The conflict expands, but the combatants remain the same. This could be a long slog that constantly teeters in tit-for-tat actions between the West and Russia. This would likely be a drag on the markets until the situation resolves, one way or another.
3 – Outside countries join the fight. This is where things can escalate and spiral into all-out war on a scale not seen since WWII. Of course, this would be the worst outcome for the world, never mind stock prices, which would also take a big hit.
Of course, there are other possibilities, and we have no idea how or when the Ukrainian/Russian conflict will end. We just hope and pray it’s close to option number one.
As for the stock market, once again we have identifiable bullish and bearish spots on the NASDAQ’s chart. On the downside, a close below 13,000 would likely mean the index will test last Thursday’s pivot low of 12,587.88. Go below that, and 12,000 probably comes into play. If 12k doesn’t hold, then 11,000 could be the next target.
On the upside, Monday’s high of 13,810.64 is the spot to keep an eye on. If the NASDAQ can close to the better side of 13.8, then it’s likely to run for its 50-day moving average of 14,500, which is also a double top. Break past 14.5, and the 200-day average becomes the next point of resistance. Based on the surge at the end of Monday’s trading, we could see bulls test the top guardrail as early as Tuesday.
Overall, there are too many wildcards that could pop up at any time. Investors might consider using technical points to trigger short-term trades; buy on bullish breaks, sell on bearish breaks. Volatility will likely be a big part of the day-to-day swings for the foreseeable future.
Commodities like gold, oil, and gas will likely head higher the longer the conflict goes, agitating current inflation issues. Once the conflict is resolved, pressure on commodities could release, maybe with a swift push lower. However, making long-term commitments right now is playing with fire and we aren’t in the business of getting burned.
There is no way we’d consider adding individual stocks right now.