Weekly Market Trends — March 6, 2022
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The Broad US Equity Market
The S&P500 (SPX) continues to reject the 4350–4400 fib retracement zone, with strong option wall resistance at 4500. While that is not completely bearish yet, it does make it hard to make a case for the bulls in an environment where global developed markets are breaking down. New bull trends to the upside often need a strong burst higher to start the bullish feedback buy cycle. The fact that we have not seen follow through buying makes the market highly vulnerable and we would continue to play defense in our portfolios.
What to Watch This Week:
Ongoing Turmoil in Ukraine and Russia’s sudden economic isolation is choking off a major global source of energy, metals and crops. This will likely continue to push Oil, Gold and Wheat forward. Meanwhile the Russia stockmarket (RSX) has lost 73% of its value in just the last 9 trading sessions (or 2 weeks). Just Sunday, Oil futures spiked to $130.50 on news of a possible embargo. More on that in the report below.
Wars tend to be good for the stock market after an initial panic, however, this war has started during a time of heavy inflation and a heating job market plus increasing risks of continued supply constrains that have led to the recent inflation which increases the likelihood of rate hikes higher than 25bps and possibly at a faster rate this year. I it were not for the invasion in Ukraine, the Fed would likely raise interest rates by 50bps in the FOMC meeting on March 16th.
Will we enter a recession with yield curve inversion and energy prices surging being forewarnings? The Fed is stuck between addressing run away inflation or addressing an economic recession, and its likely that either way we wont avoid a recession in the coming year or two. This was BEFORE the invasion and now there are major concerns that the massive price surge in energy will become a substantial drag on the US and global economy this year.
All while inflation expectations remain at multi-year highs…
Ukraine’s impact on Energy & Oil:
There is a strong chance that in the event Ukraine falls to Russia, that Ukrainian partisans will destroy the oil infrastructure that Russia is in part invading for. Russia is invading in part because of energy interests but more importantly due to concerns of the NATO military alliance getting too far into Russian territory, in what Putin claims to be Soviet Land (i.e. Ukraine used to be a part of the Soviet Union).
On average the Europeans import 90% of their energy needs, with nearly half that coming from Russia. Like everything in Europe, dependency levels vary heavily based on location. Austria, Germany Hungary, Poland and Italy are hard-wired into Russian shipments and are, in a word, stressed. Spain and Portugal could be forgiven for not being able to find Russia on a map. As in all things, France and the Low Countries sit somewhere in the middle. — MarketWatch
“If the Russian gas stops, there will be no ceiling for prices,” said Martin Vladimirov, director of the energy and climate program at the Sofia, Bulgaria-based think tank Center for the Study of Democracy… Meanwhile, a switch to coal, besides imperiling climate-change policies, is equally vulnerable to the crisis. In 2020, the EU got 49% of its hard coal imports from Russia. — WSJ
Basically, Europe has given Russia the power to act in this manor because they have limited options. They depend on Russia whether they want to or not for stable energy prices which ultimately will affect the entire economy as it is the economies most basic input.
A note from our analyst, Stephon Sharp on Oil & Russia:
We are partners with them in negotiating the Iran deal and they have essentially taken it hostage to remove sanctions. a few weeks ago, the hope was that deal would allow oil prices to come down. Also, the fact that so many of these companies are pulling profitable business operations from a country of 144 million people is super bearish heading into next few quarters. Someone is going to take that market share up; Likely China. Additionally, if Russian oil is legitimately embargoed, China will scoop up that oil all day for a discount. I actually think we see a lot of Chinese companies enter into the Russian market long term as relations get worse with the west.
Metals and Other Commodities:
“We’ve never seen such steep and sudden commodity price spikes across so many assets,” said Henning Gloystein, an analyst at Eurasia Group. “Until there’s significant de-escalation, the record or elevated prices due to sanctions and disrupted supply chains will continue for many commodities.” — Bloomberg
Gold and Gold Miners (GLD/GDX) are up along with Palladium (PALL ETF), Silver (SLV ETF), and Copper (CPER ETF). Gold futures (/GC) are looking for the breakout over $1975 resistance. This would be a 52-week-high breakout I suspect follow through to $2050/2089.20 (All-Time-Highs). Below is the weekly chart of Gold futures. Meanwhile, steel futures opened trading 8.3% higher
Tickers to watch for Gold: GDX, NEM, AEM, WPM, FCX
Tickers to watch for Palladium: PALL, PLG, SBSW
Other Metals Tickers: SLX, SLV, CPER, PPLT (steel, silver, copper, platinum)
US Commodity Price Index shows us the long-term commodities cycle starting to point up as well in the chart below.
Wheat (Ticker: WEAT) appears to be getting setup for its next move higher, finding support at its natural Fibonacci retracement level of 50% (or 10.08). This is something to keep our eyes on for a leg higher after it received 2800% relative volume in Fridays trading session. Over the past two decades, Russia and Ukraine have become major players in world grains markets and in the past two years both were the source of about 14% of world wheat production. Daily chart below with support and resistance drawn in with Fibonacci Price tools.
Next Week in Economic Data & Key Events:
Corporate News & Events:
Apple Inc hosts spring product launch on Tuesday. Apple is expected to introduce a low-cost version of its popular iPhone with 5G, a new version of the iPad Air and a high-end Mac Mini at its annual spring event.
Bumble Inc is expected to show on Tuesday a rise in fourth-quarter revenue, driven by strong growth in paying users for its dating apps.
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Other Articles to Read:
Circuit Breakers to Stop the Conflict From Escalating — drpippa.substack.com
What could be done to stop the conflict from spreading and escalating? Reach for circuit breakers.
Appetizer with Dave — Roseburg Research
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Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.
