I wonder what it must have been like in the 1930s between the great wars. A minor skirmish here and there. This land is my land. There were weak and strong leaders. Then all hell breaks loose, and it is World War II. What scares me is that human nature doesn’t change, even in these modern times.
My mother told me they had to leave their lights off at night so that their town in Vermont was invisible from the air. The government rationed everything from rubber tires to meat. The Russia / Ukraine skirmish wouldn’t bother me so much, but all the great wars came out of Fourth Turnings, just like the one we are experiencing now. At the moment, the West looks fat, spoiled, weak, and feckless. How “woke” is Putin and his army? How “woke” is Xi and his army?
As with Friday’s forecast, geopolitical headlines are taking center stage at the moment. The significant negative Gamma and elevated implied volatility exacerbate the headline impact.
Absent the successful overnight retest of the January low; I would see little reason for “risk-on” behavior. A large rally could be challenging without clarity on interest rates at the FOMC meeting on March 15th. But the market is oversold, and the trading range bottom could be in place. Keep the possibility in mind.
There will be bullish momentum and breadth divergences on the low today if we hold overnight levels, especially on the NASDAQ 100, as it reached new price lows overnight.
Navigator Algorithm Status – Daily Chart
Due to the Russia/Ukraine situation, or perhaps the fact that the rest of the world traded futures yesterday while our exchanges were closed, we have a 140 point overnight range. I don’t need to tell you that it is vast.
Notably, the S&P 500 Futures did not get to the January low at 4213. The NASDAQ 100 Futures was the only index that briefly violated its January low, but they also brought it back. I view that as bullish in the circumstances.
The overnight range is not only large, we will open in the middle. I would advise “wait and see” mode – there is nothing to guide us for the open.
Given the market’s resiliency, I would stay slightly bullish above Friday’s low at 4321 up to resistance at 4400. Support is at 4300, then 4270. Freefall starts below the overnight low at 4250. Here are the current Gamma levels, with support and resistance in the valleys. Note the Gamma around 4000 – it is considerable. From an options perspective, it would take a lot of bear conviction to punch through that level.
My order flow screens show a lot of sell limit orders around 4375 this morning and only a few buys around 4250. That can certainly change and doesn’t include market orders, but the market typically goes to liquidity. So I would be careful holding longs at the level.
I marked all nearby key levels on my 15-minute screen below. The screen is noisy, but I typically day trade from a five-minute chart that spreads them out:
Ask yourself this question today. What is it that the market does not know at this juncture? Putin has invaded. Did oil prices move to new highs? No. Did gold prices move to new highs? No. Did the S&P 500 Index Futures make new lows? No. Are treasuries rallying or selling off this morning? They are selling off.
Also, note the “h” pattern on the S&P 500 and NASDAQ 100 indices. Some say the “h” stands for hell for the shorts.
The situation at hand looks like buy the rumor, sell the news behavior thus far. Make sure you review the macro picture from last night.
Don’t forget your stops with the volatility at hand, and good luck today.
A.F. Thornton