Based
on Friday’s price action, it became abundantly clear that global macro economic
events, most notably tensions with Russia, are the single biggest factor in the
market right now. As Barack Obama
announced that the US would begin air strikes in Iraq on Thursday night,
S&P futures immediately sold off and US treasuries rallied sharply. Then, right around 6:15am CT on Friday,
news broke that Russia was pulling back some of its troops from the border and
ending military exercises. S&P
futures rallied 8 points on the news and the rest is history, leading to the
S&P rallying 1.17%. Yesterday,
Ukrainian Rebels have started to submit to calls for a cease-fire, which will
only be positive for US equities.
I’ve mentioned countless times that you should be using geopolitical sell-offs
to buy this market, because once they subside, attention will be turned to the
strength of the US economy and outstanding corporate earnings.
The
easing tensions in Ukraine led many short sellers to cover positions fearing
that the market would turn and rally, especially if more good news in Ukraine
surfaced over the weekend. The
S&P also held a key technical level (100 day moving average), and you now
have a level to trade against. If
you are looking to build positions right now, you can use Thursday’s low of
1905 as your support level. 1913
is the 78.6% Fibonacci retracement and 1914 is the 100 day MA. The S&P also held an uptrend line
at 1910, connecting the 52-week low to the low of the last market sell off in
April. With so many key technical
support levels sitting right around 1910, you should be confident that the
market will hold. But beware that
if the market falls below this support, all signs point to a drop down to 1850. If you’re concerned about a further
drop because geopolitical tensions are not over, then buy part of your
positions now and wait to see if the market drops to 1850. But I wouldn’t count on it.
Over
the last few weeks, I’ve mentioned keeping an eye on the Russell 2000 because
the small-cap index led the market higher this year, then has led the market
lower. The Russell 2000 also held
key support, before the S&P did this week. On Monday, the Russell traded down to the uptrend line at
1106, connecting the 52-week low to the 2014 low. Since then, the index has rallied 2.2% compared to the
S&P, which is up just 0.5% in the same timeframe. Keep your eye on the Russell 2000, because where that goes,
the broader market will go. The
other telling point that the Russell should move higher is again, the headline
on Marketwatch.com that says, “Why small-cap stocks will likely feel the most
pain.” Just like last week’s set
of headlines calling for a 20% drop in the market, it will be wrong.
Take
some time this week to look through some of the earnings calls over the last
couple months and pick out stocks of companies that reported a strong quarter
and great guidance but sold off because of global events or because that
particular stock rallied into their earnings reports. Check out companies like Starbucks, Honeywell, Disney, Lockheed
Martin, and airline stocks like Delta Airlines.
My current positions: Long
Ford (F), Gilead Sciences (GILD), Starbucks (SBUX), Macy’s (M), Boeing (BA),
Google (GOOGL), Facebook (FB), Coach (COH), Citibank (C), Delta Airlines (DAL)
Biogen Idec (BIIB), Buffalo Wild Wings (BWLD), and short IBM (IBM).
Jeff Lewison
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