Home Market Analysis Buying and selling Desk Notes: Markets See Main Swings As Russia Invades Ukraine

Buying and selling Desk Notes: Markets See Main Swings As Russia Invades Ukraine

Buying and selling Desk Notes: Markets See Main Swings As Russia Invades Ukraine


Russian Blitzkrieg invasion of Ukraine initiated DRAMATIC surges and reversals throughout markets

The plunged to a 9-month low early Thursday morning (down ~15% from January All-Time Highs) however then rallied laborious into Friday’s shut.

Emini S&P 500 Daily Chart

Emini S&P 500 Every day Chart

The tumbled and bounced again ~1,700 factors on this 4-day week to shut nearly exactly the place it closed final week! (Like nothing occurred!)

DJIA Weekly Chart

had been trending greater (up ~ $125) since late January however soared one other ~$75 early Thursday, solely to plunge almost $100 later the identical day.

Gold Daily Chart
Gold Chart

Gold Chart

Gold is leaving within the mud.

Gold vs Bitcoin

Gold vs Bitcoin

rallied ~50% from early December to mid-February – it soared and collapsed ~$9 on Thursday (after briefly buying and selling above $100 for the primary time in eight years.)

WTI Crude Oil Daily Chart

WTI Crude Oil Every day Chart

Chicago soared to a 12-year excessive after which tumbled sharply on Friday ( and additionally surged and fell this week.)

Chicago Wheat Daily Chart

Chicago Wheat Every day Chart

The surged to a brand new 20-month excessive (because the plunged to a 20-month low), then fell sharply into Friday’s shut.

US Dollar Index Daily Chart

US Greenback Index Every day Chart

The tumbled to a brand new All-Time Low Vs. the US Greenback.

Russian Ruble Monthly Chart

Russian Ruble Month-to-month Chart

Inventory index choices volatility soared to almost the best ranges because the COVID panic in 2020, however fell sharply on Friday.

Stock Index Options Volatility Daily Chart

Inventory Index Choices Volatility Every day Chart

This chart is from Thursday:

VIX Chart

VIX Chart

Why the gorgeous market reversals this week?

Markets have been shocked on the Russian assault’s pace, measurement, and ferociousness. All people knew the Russians had amassed troops and army {hardware} to the North, South and East of Ukraine, and the “geopolitical stress” had exacerbated risk-off sentiment final week, particularly with American and British intelligence companies predicting an imminent assault.

This chart was launched mid-week:

Market Reversals

Market Reversals

However “nothing” occurred in Ukraine early within the week, after which, immediately, Wednesday night, the Russians charged. Markets did what you’d anticipate: shares fell, the US greenback, gold, commodities and volatility soared.

Shares gapped decrease when Thursday’s day session started—however Huge Tech started to rally instantly whereas the broader market went sideways to decrease.

On Thursday’s hole decrease opening Microsoft (NASDAQ:) was down >20% from its November excessive. Apple (NASDAQ:) was down >16% from its January excessive. Alphabet (NASDAQ:) was down ~18% in lower than a month. Amazon (NASDAQ:) was down ~26% from its November highs. Tesla (NASDAQ:) was down >40% from its early January highs, and NVIDIA (NASDAQ:) was down ~38% from its November highs. Meta Platforms (NASDAQ:) was down>40% in lower than a month.

MSFT Daily Chart
AAPL Daily Chart

Any person began shopping for Huge Teck with each arms when the market opened sharply decrease Thursday morning. It was in all probability hedge funds protecting shorts, which sparked the monster rally.

Market liquidity was skinny—a warfare had simply began—and possibility volatility had soared. As Huge Tech began to rally, choices sellers turned patrons to handle gamma threat—and as markets continued to rally, individuals who had beforehand purchased places started promoting them, including gasoline to the fireplace.

Inde/ETF Puts - Notional Volume 10-Yr

Inde/ETF Places – Notional Quantity 10-Yr

When market sentiment turns into extraordinarily risk-off (like when a warfare begins), correlations between property go to at least one. With Huge Tech main the inventory markets greater (the was HUGELY out-performing the Dow), folks began promoting the spike rallies in gold, crude, grains and the US greenback. Individuals who had purchased these markets (pondering they might have large rallies due to the warfare) have been positioned improper and needed to promote, accelerating the reversals from the spike highs.

One of many traits of bear markets is that they’ve face-ripping “bear market rallies,”which we noticed on Thursday and Friday. (One of many nice market chestnuts is that everyone loses cash in a bear market.)

It’s important to grasp that the rally was NOT attributable to folks assuming that the warfare in Ukraine was “no large deal.” The warfare might finish this weekend—or it could proceed for months—however it’s nonetheless an enormous deal even when it does finish this weekend. Putin has taken the gloves off, and a brand new chilly warfare has began, which could have a HUGE affect on markets.

Russia is now a extreme downside. Russia just isn’t monolithic, and Russia is NOT Putin—who has been uncovered as a cold-hearted liar. Hundreds of Russian residents have been arrested for protesting the warfare. The pace of the assault might have made Russia seem invincible, which can be removed from the reality. The idea that Putin could have unwavering assist from China can also be improper. (Wouldn’t or not it’s fascinating if Xi turned his again on Putin the Pariah?)

Russia might be remoted and can doubtless retaliate in opposition to the sanctions. Suppose cyber-attacks in opposition to the West. Commodity exports from Russia might be decreased—patrons should supply merchandise from different commodity-producing international locations.

Western governments could also be shocked into abandoning virtue-signaling ESG pushed power insurance policies and begin encouraging the event of dependable power provides. The USA, as an illustration, might promote the event of home fossil fuels and Canadian oil sands. (Word: closed at All-Time Highs Friday – regardless of WTI closing $9 beneath Thursday’s excessive.)

CNQ Weekly Chart
US Oil & Gas Exploration & Production Capex

US Oil & Gasoline Exploration & Manufacturing Capex

CHENCOAL Index Chart

CHENCOAL Index Chart

Biden has the deal with on Mar. 1, and this might be his alternative to show round his and the Democratic celebration’s fading reputation.

My quick time period buying and selling

I bought off to a gradual begin this week after the 3-day President’s Day weekend. I used to be flat on the finish of final week and in no hurry to discover a commerce only for the sake of “doing one thing.”

I purchased the S+P Tuesday and closed the commerce for a small achieve. I purchased the Wednesday and closed the commerce for a slight loss.

I purchased the S+P early Thursday morning because the market rallied again from the in a single day lows however was stopped for a small achieve. I rebought it a couple of minutes later because the market recovered from a short setback and coated it on the shut for a 110 level achieve. I assumed that the rally was a bear market quick squeeze, and 110 factors was an awesome transfer. The market rallied one other 100+ factors Friday with out me.

Emini S&P 500 60-Min Chart

Emini S&P 500 60-Min Chart

The S+P rallied nearly 300 factors from early Thursday morning to Friday’s shut. To place that gorgeous transfer into perspective: because the market turned up from the COVID panic lows in March 2020, there have solely been three whole weeks with a 300 level excessive/low vary.

I used to be flat going into the weekend, and my P+L was up ~1.2% on the week.

On my radar

The spectacular commodity rally that noticed the indices achieve >200% because the March 2020 lows might have made an vital prime this week. The identical pondering might apply to crude oil. I’m not saying the BIG commodity rally is over, however a correction is overdue.

Bloomberg Commodity Spot Index

Bloomberg Commodity Spot Index

I feel the inventory market rally off this week’s lows is a bear market rally, and it’ll run out of steam and rollover.

S&P 500 Index Seasonality

S&P 500 Index Seasonality

My son Drew factors out that oil bulls would possibly think about writing December ATM places. Dec closed Friday at ~$81, an $11 low cost to front-month April. The Dec $81 strike places commerce at round $11. Internet/internet if you happen to promote the places and get exercised on the finish of November, you’ll successfully be lengthy WTI at ~$70, which is ~$22 beneath the present entrance month value of $92. Backwardation creates alternatives. (This isn’t funding recommendation. Keep in mind, WTI dropped from $147 in July 2008 to $33 in December.)

If WTI and commodities have the correction I anticipate, after which regular, I’ll take a look at writing ahead dated WTI places.

Ideas on buying and selling

This week was an awesome week for “making peace” with the truth that I can’t catch each transfer. I wished to promote gold up $80 Thursday morning, and I wished to promote WTI at $100. However I already had “the commerce” on by being lengthy the S+P. I famous above that correlation goes to at least one when sentiment is excessive. In that sense, on this surroundings, being lengthy S+P was the “identical factor” as being quick gold or WTI. If I made the gold or WTI commerce, I’d be “concentrating” my threat publicity—and that’s nice if you happen to’re proper, lethal if you happen to’re improper.

In fact, you possibly can by no means have sufficient on when the market is hovering in your favor!

I’ve observed my buying and selling time horizon has shrunk as short-term value ranges have elevated, which is solely intuitive threat administration. I by no means was once a day dealer—however with at present’s intra-day value swings extra vital than what we used to see in per week or a month—nicely, it appears we’re all day merchants now!

Quotes from the pocket book

“Old-fashioned media need your prime picks – they don’t care about or wish to hear about your course of.” Keith McCullough – Hedgeye, RTV interview 2019

“Commentator’s (ie, chief strategists) success is linked to how typically they’re proper or improper. (They don’t have a P+L.) They’re subsequently entertainers…their fame is the results of their presentation expertise.” Nasim Taleb – Fooled By Randomness

“I control ‘the information’ and ‘commentary’ to get an thought of ‘positioning.’ I wish to have some thought of how a lot mispricing might be uncovered if markets transfer opposite to the ‘commentary.’ I wish to front-run that re-positioning.”

Victor Adair, notes to myself, 2019


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