S.O.S. started out as Morse Code for Save our Ship. It was a distress signal for other ships in the area to help vessels stranded, or worse, at sea. Since then, it’s evolved to some other uses. The band Motley Crue used it for their song Same Ol’ Situation. The Police sang Sending Out An SOS. Another is an R-Rated cliché’ reply to describe the doldrums of daily routines, Same Old #^%@. Maybe it’s Wall Street’s turn to put the distress signal to work – Save Our Stocks.
This week’s analysis could not be simpler, the NASDAQ is dangling on support, one-handed by its fingernails. The index closed at 12,581.22, slightly below February 24th’s intraday low of 12,587.88. (Investors established a new, current cycle intraday low on Monday of 12,555.35.)
If the NASDAQ closes under 12,500, minus the end of hostilities in Ukraine, then it would likely trigger more selling and push the index towards 12,000, probably in a hurry. Closing below 12k with the war continuing as is would likely add to selling pressure, possibly moving swiftly lower in 500 points chunks over the course of a few days. We would not be surprised to the see the NASDAQ find its 200-week moving average (10,478 and rising as we type) if the fight over Ukraine isn’t resolved within the next few weeks.
The worst-case scenario is if the war expands to include NATO. Then all bets are off, and the NASDAQ (all global markets) would probably react violently to the downside, perhaps straight to the 200-week mark in a matter of days.
Once the war is over, whenever that is, there is likely to be a sharp relief rally. However, we’d still consider selling into strength for now. Inflation has been exasperated by the Ukrainian conflict, but it’s not the original or sole source. Most analysts believe it’s going to take a while, possibly well into next year before price pressures start to ease. Rising rent, cost of housing, food, gas… exploding essential bills are cutting into discretionary spending.
Unquestionably, the economy is going too slow. The Atlanta Fed forecasts first quarter growth to come in at just a half of a percent. (1). The question is starting to slowly shift from how much growth to are we headed for a recession. Goldman Sachs puts the odds as high as 35%. I am no economist, but the stock market is telling us the odds are higher than that.
Here is the dilemma. The Federal Reserve already has interest rates at essentially ZERO. They have no room to cut rates. The only option is printing money and deficit spending, which would likely add fuel to the inflation fire. To us, it doesn’t look like there is an easy way out.
We sincerely hope that two years of Covid, $6 gasoline, short supplies, threats of nuclear war… is distorting our view through a negative lens. Nonetheless, we’d rather be prepared for the worst and hope for the best.
Even Oil and Gold got cracked to start the week. There are no safe places in a sinking ship. We’ll wait for the stocks to find firm ground before making any moves.
Ditto for stocks.
1 – https://www.atlantafed.org/cqer/research/gdpnow
2 – https://www.marketwatch.com/story/goldman-cuts-u-s-gdp-forecast-to-a-full-point-below-consensus-as-it-says-recession-odds-are-as-high-as-35-11646999690