Todd Harrison: China and Ukraine Drop the Hammer on US Stocks
Geopolitical crosscurrents catch traders looking the wrong way.
One dog goes one way; the other dog goes the other way, and this guy's sayin', "Whataya want from me?"
- Tommy DeVito, Goodfellas
Asian markets held their ground last night, and US stocks, buoyed by slightly better-than-expected retail sales, breathed a deep sigh of relief this morning. It didn't last for long.
Geopolitical crosscurrents soon swept US stocks lower, gradually at first and then with increased urgency.
Some will argue that saber rattling was the catalyst: The Ukraine president was quoted as saying, "There is a real risk of war as it appears as though Russia is ready to invade Ukraine, and hopefully international efforts can end the aggression." Others will point to the potential for loan defaults in China and the counter-party contagion that could follow.
More likely than not, it is a combination of both.
Adding spice to the mix -- as if the mix needed spice -- is the plethora of technical patterns at inflection point. In no particular order:
S&P (INDEXSP:.INX) 1850: Where the breakout began and (by definition) where the bulls must hold if there is to be a breakout. If this level fails, there will be a lot of traders sitting in risk without a catalyst.
Click to enlarge
NDX (NASDAQ:NDX) 3640: This is the corresponding level for tech; while it's not all-time highs, it is the near-term pivot point.
Click to enlarge
IBB (NASDAQ:IBB) 260: Biotech led the market higher, and lately it's led the market lower. IBB 260 is the technical toggle that will define the near-term momentum.
BKX (INDEXSP:BKX) 71.50 and TRAN (INDEXDJX:DJT) 7600: The banks and transports never confirmed the breakout, and a rally through these levels was/is necessary to do so.
NKY (INDEXNIKKEI:NI225) 14,700 and NKY 14,000: Japan is sitting on a near-term trend-line, which is the only technical support between current levels and NKY 14,000. And if Japan breaks NKY 14K, it works (through a pure technical lens) a full 16% lower, to NKY 11,680.
Click to enlarge
SHCOMP 1985: The Shanghai Composite (SHA:000001) rallied 1% last night, holding its respective level of lore despite all sorts of chatter of an imminent wave of defaults. I recently wrote that this juncture in China reminds me of September 2008 in the US, but that remains to be seen. A picture, however, speaks 1,000 words; a break below SHCOMP 1985 works 10% lower.
Click to enlarge
Now, the bulls fully understand the gravity of the moment; they know perception is reality and that IF they can hold the line in the S&P and NDX, this will be textbook basing (above support) rather than churning (under resistance). That's how important these levels are; they're literally worth billions, if not trillions, of dollars.
- With all due respect to 8 Mile, it would appear that Twitter (NYSE:TWTR) is the new venue for battles. I'm watching the stock, too, as it has been slinking sideways for a month.
- My cannabis patch (on my screen!) is equal parts green and red; I mention this as a proxy for risk appetites, but also as I weigh my single best idea for the next decade versus the frothy nature of the price action of late.
- You know the market is under pressure if GW Pharma (NASDAQ:GWPH) is down $1 (after running $70).
- Five years ago Monday we lost a very special friend. All I can say is that Bennet would be awfully proud of Michael Sedacca. The kid is a chip off the old block.
- Market breadth is 2:1 negative and the tenor is sloppy; I wouldn't be surprised to see the bulls defend S&P 1850, though. At least today. War worries into the weekend are another story.
- As always, I hope this finds you well.
Follow Todd and over 30 professional traders as they share their ideas in real-time with a FREE 14 day trial to Buzz & Banter.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter