The US markets were closed on Monday in observation of Presidents’ Day. It was probably a good thing. Late in the afternoon, Russian President Vladimir Putin announced Russia would recognize the independence of Donetsk and Luhansk. (1)
Prior to the announcement, U.S. Secretary of State Antony Blinken said there would be, “swift and firm response from the United States in full coordination with our Allies and partners” if President Putin recognized the two breakaway republics as independent.
No matter what, it will be seen as an escalation of tensions between the US and Russia, which could put pressure on stock prices. Unfortunately for investors, there isn’t much leg room below before the NASDAQ enters into dangerous territory.
As we’ve noted in the previous two newsletters, the NASDAQ had to stay above the closing floor of the most recent low at 13,352.78. The index ended just a couple hundred points above the important guardrail. We’ve also highlighted the possibility of the NASDAQ experiencing the cross of death. It’s become reality as the tech-laden index’s 50-day moving average crossed below the 200-day number last Friday.
While the cross of death isn’t a perfect predictor, it is widely considered bearish and didn’t get its menacing name for nothing. Unfortunately, the cross of death isn’t the only negative crossover on the NASDAQ’s chart. It also shows a bearish MACD signal.
All these negatives add up to the 13,352.78 being the stop of last resort. If Wall Street blasts though 2022’s closing low on the Russia/Ukraine news, then 13,000 offers some hope. Break below 13 grand and the NASDAQ could shed another 500 to 1000 points in a hurry.
If the NASDAQ closes under 13,300, investors might consider adding an inverse index exchange-traded fund (ETF) to their portfolio as a potential hedge against what could be an ugly run lower. ProShares Short QQQ (PSQ) is an inverse NASDAQ 100 ETF, and its objective is to return the opposite of the NASDAQ 100 index on a daily basis. For example, if the NASDAQ 100 drops 2% in a day, PSQ should gain 2% in a day. Of course, the opposite is true. If the NASDAQ goes up, then PSQ goes down.
In uncertain times, especially with war drums banging, physical assets tend to rise in price as investors flock to safe havens. Commodities like gold and oil, along with real estate, could see their prices rise if the situation between the US and Russia continues to worsen.
Nonetheless, we don’t find the current environment one to jump into. News one way of the other, with likely contradicting reports from one day to the next, are likely to provoke wild swings in prices of all assets.
There is no way we’d initiate new positions under the current circumstances. We’ll wait for the market to pivot higher and confirm a new uptrend before adding anything new.
1 – https://www.cbsnews.com/news/russia-ukraine-breakaway-regions-putin-recognizes/