Cold War II? Sanctions and sinking Ruble

Good morning!

Today is the last day of February and unfortunately not the end of this war on the Ukrainian front. We see the NATO and EU states imposing sanctions on Russia, sinking its economy and currency, hoping it is the main deterrent against the war. Russia is blocked by being cut off from SWIFT, BP is offloading 20% of its stake in Rosneft, and the ruble is down 30%. With the whole instability in the Eastern part of Europe the futures are down about 1.5% (as I am writing this piece),  so the recovery from Thursday on the stock exchange may be reversed. It is important to look at the main indices $SPY and $QQQ and see how they will react when the market opens. Will they hold Friday’s lows, or will they sink lower than Thursday? The question is did we hit the bottom related to this conflict or do we go lower?

$SPY Chart

If the $SPY holds $427.86 and it pushes higher we can see strength in the market and trade against that low, if not we can see another sharp drop. If you want to put money at work this is in an important level you should watch and trade against. With oil prices raging and volatility spiking we are in uncharted territory. We should compound on top of that the FED rate hikes and inflation, therefore we have a fine line to thread.

$QQQ Chart

The tech sector is more vulnerable when the oil prices are so high, so again Friday’s low is very important: $337.39. If it holds then this sector is resilient and we can trade against this level. Watch semis today, like $AMD and $NVDA for market sentiment. Also see if $AAPL is strong, since it is a good place for investors to ‘hide’ money in situations like these.

We have to remember that there is no need to panic if you use technical analysis because you trade against levels, irrespective of news on the TV sets. We are in a bear market for a while now due to plenty of factors discussed in our articles, therefore it is not a time for a portfolio type of approach. We came in light over the weekend so we have flexibility to navigate this tape. Know your levels for some of the stocks you plan on approaching today and be tactical. If Friday’s lows are broken get out of the way for a paper cut on the trailers left over the weekend. If they hold try to add to some positions and trim heavily in strength since we can have a yo-yo type of tape and things can get painful. Remember we are not in a bull market and we are under all the moving averages, so the market’s strength is diminished. At the same time you can find opportunities for cash flow, so pay attention to the levels and the main indices. The volatility index spiked today, but it is nowhere near Thursday’s levels, therefore we may see a taming of of the situation given the fact that we have a clearer image of the war. Stay tactical as the path of least resistance is still to the downside, but don’t run in fear unless the levels tell you to do so.

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