I cannot remember observing such panic in the press or financial markets as has been building this weekend. Notably, the put/call ratio finished high on Friday. But I don’t need any fear gauges to sense that panic is in the air over the Fed and Ukraine.
Oil is approaching $100 a barrel because of the tensions in Ukraine. Interest rates have already spiked because the Fed needs to raise them. If Russia were to invade Ukraine, it would put the Fed rate increases on hold anyway.
I will have a video out in a few hours, but in the meantime, here are a few thoughts and my current Day Trading Screen:
I will republish the screen with key levels tomorrow morning and detailed options information, including the Gamma Flip level and the Volatility Trigger.
We have the Weekly Expected Move and January lows plus two important uptrend lines, all in the same region to support the market. I don’t expect the market to punch through the area except in a full-on panic and Ukraine invasion. Then, and only then, would I target a C-wave move (equal to the first down leg) that would temporarily take the market to the 4000 region.
Week after week, we observe how powerful the Weekly Expected Moves are on both ends of the range. These critical levels limit most weekly rallies and declines. Look no further than last week, when the WEM low stopped the slide despite the Friday panic. And even in the early week rally, the WEM high stopped the advance (see below).
In the famous movie line, Gordon Gecko emphatically stated that “Greed is Good.” He had it dead wrong respecting the stock market. “Fear” is good for the market, and there is plenty of it to go around right now. This moment could morph into that “sold the rumor – buy the news” opportunity.
We sold the rumor, and our strategies are 100% cash. We have had exceptional gains for the year so far. But cash is trash in a low-interest rate, inflationary environment. We will patiently await the right moment to redeploy some of our cash.
There are powerful short-covering rallies when fear has run its course, even in a bear market.
A.F. Thornton