Not that it isn’t already ugly, but things could get even uglier for investors quickly. The NASDAQ closed at its lowest level since this time last year and there isn’t much of a safety net below. The intraday low of 12,587.88 on February 24th could be all that stands between here and 12,000. If the tech-dominated index busts below 12k, then there is a pretty good chance it could makes its way to 11,000-10,500.
Soaring oil prices, war in the Ukraine, and the possible economic fallout (recession) put the NASDAQ between its 50-week and 200-week moving averages. During the initial stages of the last crisis, COVID, the index plummeted to its 200-day benchmark. The current selloff hasn’t been as swift and will likely be met with a relief rally once a ceasefire and peace agreement are reached. God willing, sooner than later, but the longer it goes on, the higher the odds become of visiting the 200-week benchmark.
Now, it’s not all bad for equity prices in the immediate term. The NASDAQ is approaching oversold conditions on a weekly and daily basis. Another bad day or two could be followed by a pop. If the pop is not driven by a ceasefire and the end of hostilities between Russia and Ukraine, then investors might be wise to sell into strength and raise cash.
For now, investors would be wise not to try and catch a falling knife.
If the war in Ukraine is settled quickly, then a strong relief rally is possible. However, it won’t mean we are out of the woods for good. There is no question our global rivals, China, Russia, Iran… will look to find workarounds after the US and its western allies shut Russia out of SWIFT. There are always unforeseen and unintended consequences for what is essentially economic warfare.
It’s all about commodities, gold, oil, nickel, fertilizer, wheat… are going into orbit. There are estimates that oil could get as high as $300 if the war continues for an extended period. Stocks might not be able to recover if oil goes that high, at least not for a while. Unquestionably, prices that high will push the global economy into recession, maybe worse.
No chance we are thinking about adding any individual stocks right now. However, investors should be compiling a list of names they want to own when this mess is over.