A lot of headlines and market gyrations have taken place this week, but my big picture view is what guides my investing and remains the same now as what I explained on Monday in a long post. With the big gap ups and downs in various markets yesterday morning, which got filled, I think the markets have priced in the Ukraine war. That’s normal and how markets trade on news. They tend to buy the rumor and sell the news – so you saw that for instance in the price of oil and gold, which gapped up big Thursday morning and then sold the gap. Now they will trade on their underlying trends and fundamentals and not just Ukraine headlines.
It’s the same with everything else.
Overall I think the US stock market is in a bear market, along with bonds, while commodities are in a bull market. What we are going through now is some smash-up combination of the 1970’s and the 2000 stock market top in the bubble.
That said, most individual traders in the market are not bearish and are still mostly interested in playing the stocks that were the big winners of the past few years. When the market gapped down yesterday people trading on Fidelity rushed to buy stocks. The individual self-directed trader and investor was a buyer on the gap down. I don’t think we’ll see a real end to this current decline in the stock market that began around New Years when people actually do panic sell instead of buy.
Here is a screen shot from Fidelity yesterday around 10:00 AM.
A lot of the stock market bull gurus, like Cathie Woods, are likely to predict tops in commodities as they know that inflation is a threat to their investment strategies that they are locked into and have been predicting that anyway from time to time.
Ignore their talk, because commodities and precious metals are part of a larger underlying trend that began in 2020 when commodities made a secular low. This trend did not start with Ukraine, so I’m looking commodities to pause and collect their bearings after the Ukraine news profit selling and then make their next move. Gold holding above $1900 here would be a powerful sign for gold bulls.
The stock market too is now likely to resume its focus on earnings, interest rates, and inflation.
None of this really changes the overall chart patterns of any of these markets though.
I’m just saying don’t obsess over the Ukraine news now when it comes to the market.
People were talking about rumors of war and the war started so when it comes to the markets that trade is over.
I think the bulls are buying into what is a trap door on them as the market averages now are pretty well below their 200-day moving averages. In bear markets those moving averages act as resistance.
Sure the market can rally another day or two, but once the current bounce ends it’ll probably do so below the 200-day moving average.
I doubt we’ll see a real final end to this downtrend that began around New Years for the S&P 500, DOW, and Nasdaq until we see a day of more selling than buying on Fidelity and the VIX over 40 at this point. This has the look now of a downtrend that is likely to go on for weeks or months before it ends.
If the market had dumped hard yesterday off the open to cause the VIX to jump up 25% and get above 40 I’d be thinking we have seen a real bottom – and it may end up going higher than that.
But instead, it just feels like complacency and people diving in to buy assuming that nothing is really changed – or hoping that is the case.
We’ll see how this plays out today and into early next week.
-Mike
