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Todd Harrison: China and Ukraine Drop the Hammer on US Stocks

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Geopolitical crosscurrents catch traders looking the wrong way.

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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.


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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.


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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.

Random Thoughts:
  • 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.
  • 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.
R.P.

Twitter: @todd_harrison

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