Diplomacy has lost today as Russia invades Ukraine and shots are recorded by journalists in the region. The price of oil soars and the main indices are being crushed. The Russians are once again slapped with sanctions by the EU Commission President, Ursula von der Leyen, by freezing all Russian assets and stopping all access to European markets. These moves brought the $SPY and $QQQ on their knees, erasing all of 2022 and most of 2021 gains. Thanks to technical analysis we got out of all of our long positions yesterday, when the lows were broken and we are waiting patiently for a resolution. Today is a day in which the focus should be on international security rather than finding a way to navigate the markets, and therefore cash is a position. Even with inflation and the Russian-Ukrainian war raging cash is still better than trying to find a bottom or a way to short this situation. Even if there is money to be made short since the indices broke important levels, the volatility is so high that any trader with less than vast experience is at high risk to waste their portfolio. Our team at Eclub Trading sends good thoughts and prayers to the people of Ukraine and hopes diplomacy will win once again in the near future.
As I am writing this piece the futures are down 1.8% and all levels are decimated. There is no support really until the gap is filled at $400, so prepare for a sharp drop in the $SPY, which would bring a correction of about 20% off its highs.
We can also see capitulation in the tech sector, with futures down 2.5% at the time I am writing this piece. There is no support until $316-306, and this puts us all in no-man’s land. We have to remember that the war situation is compounded by the FED’s rate hikes, and therefore we do not have a recipe conducive to a bull’s market for the moment.
Normally when we have 3-4 days down in the indices one would expect a bounce, since things are getting oversold. However today is no regular day since we have war raging in the East and the FED hiking rates in the West. When there are such levels of uncertainty sell offs happen in the market until we have a resolution. Mr Buffet says to be ‘fearful when others are greedy and greedy when others are fearful’, but is today the day to do that? If you think that we could have a bounce from here, even if we still have space to fall, you could buy some lotto call options for next week. I am saying options because risk is defined and the value is small, therefore your losses can be minimal. We intend to stay neutral today, watch the international theatre and if possible only make some surgical trades. It is nothing normal about today when we have a war raging on the borders of the European Union and with Russia being cut off from the international financial community. Keep cash as a position as it is your only weapon in this scenario. You have to wait patiently for a resolution as timing is everything in these situations.
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