Increased Russian-Ukraine Tensions Add an Additional Market Headwind
Here's the critical issue for the market right now and the area I'm concentrated on for stock picking.
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After selling off most of last week, the market found some support on Monday. It was mixed action, with the DJIA and Russell 2000 IWM lagging, but a rebound in the Nasdaq 100 QQQ and Magnificent Seven MAGS raised hopes that post-election optimism would find some renewed traction.
The market needs some additional consolidation, but several obstacles could cause difficulty. Early on Tuesday morning, Russia announced that it had intercepted five ballistic missiles supplied to Ukraine by the U.S. Riussian President Vladimir Putin signed a decree allowing Russia to respond and stated that it would view an attack by a non-nuclear power backed by a nuclear power as a joint attack. Markets dipped on this news, but the response is relatively mild so far. However, this could be a convenient excuse for more selling as speculation about the events gains traction.
The "war" news caused bonds TLT and gold GLD to spike, which may temporarialy offset growing concerns about inflation, but that issue will continue to be a headwind. Upcoming earnings from Walmart WMT and other retailers will also impact the economic growth and inflation debate.
Another issue that will impact the market is the naming of a Treasury Secretary by Donald Trump and more details about his economic policy. The Bitcoin sector also has substantial news flow as Trump prepares to meet with Coinbase COIN management.
The critical issue is for the market to hold support and build a foundation as we move into positive seasonality during Thanksgiving week. Small-caps often perform very well on the days surrounding the holiday, and there will be an excellent setup if the post-election gap is filled and IWM finds support at around $225.
There have been some very ugly pockets of action among stocks that did the best in the post-election period, but a hard shake was needed to produce healthier technical setups. While the Ukraine-Russia news may cause another surge in volatility, that isn’t necessarily a negative if things calm back down in a few days.
I’ll continue to focus on individual stock picking and am particularly interested in some of the biotechnology names that have been hit very hard in the past week.
At the time of publication, Rev Shark had no positions in any securities mentioned.
