Central Bank Actions Could Lead To Civil Unrest In Russia

Posted 9:30 AM ET - The war in the Ukraine continues to weigh on the market. Putin placed his nuclear forces on high alert and that sparked selling over the weekend. This is a scare tactic on his part and there is no threat of military support from NATO. I believe the overnight drop will present a buying opportunity today. The US and the EU agreed to freeze Russian central bank assets and this is going to hurt Russia financially. It will also create unrest in Russia as citizens scramble to take money out of their bank accounts. The Russian central bank doubled interest rates over the weekend to 20% (previously 9.5%) and the ruble has lost a third of its value relative to the dollar since the invasion. Russia was also removed from SWIFT (interbank messaging system) which will cripple commerce. Commercial air travel from Russia to the EU has also been halted. Drastic measures like this start to raise credit concerns and I believe this (and not the nuclear high alert) is causing the market drop. I’m reading comments from the largest European banks with the most exposure and they feel that credit risk is contained. Russia has been a “bad actor” and this invasion has been brewing for more than six years. Putin will be fighting civil unrest in his own country. This is will be a busy week for economic releases (ISM manufacturing, ISM services, ADP and the Unemployment Report). Covid-19 cases are decreasing and businesses are reopening. That should bode well for employment and analysts are expecting 400K new jobs. A strong number could pave the way for a 50 basis point rate hike in two weeks. I am expecting market volatility through the FOMC meeting on March 16th. Swing traders are long SPY at $430 from the open last Friday. I like this level and I like the price action the last two days. We need to expect nervous jitters the next few weeks. On a longer term basis, this is a good entry point. Day traders should be patient. The S&P 500 was down more than 120 points overnight and it has recovered half of those losses. Conditions will be volatile. I believe that credit conditions in Russia will be an issue for some lenders, but the exposure is small enough to prevent contagion. If the ECB and the Fed felt that a credit crisis was a legitimate concern they would have taken other measures. I will be watching for signs of support and I am favoring the long side. End of month/beginning of the month fund buying might lend a little support today. I am not expecting it, but consecutive long green candles stacked with little to no overlap will prompt me to get long early (20%). If I do not see this pattern I will wait patiently and that is what I would prefer to do. Support is at $427.50. Resistance is at $435 and $437.50. . .

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