Week of 2/21 – 2/25 : Is the Stock Market Cancelled ?

Putin controls the markets!

This week’s market outlook is very short. As there is no point going into too much analysis when we know that the developing War situation is going to trump any technical analysis.

The markets have digested all major earnings, Fed events and interest rate hikes by now. Technical analysis works amazing well for markets which are heading smoothly in any given direction. But when you throw in major geo-political events with binary outcomes, the only thing that is useful is price/action and support/resistance levels. We are that critical juncture right now, where we are faced with a binary outcome. And Putin seems to have all the cards in his pocket. All Indices are about to test their January lows. And any bad news on the War front and a break of these levels is not going to be good news for the Stock Market. 

Macro-economic events next week – WAR!

We have the usual slew of data next week like PMI and Jobless Claims. But none of that matters as long as the Stock Market is held hostage by the war situation developing in Ukraine.

What to watch for in Earnings next week :

With markets at a critical juncture, this whole earnings season has been a blur and we hardly took any post-earnings trades. Earnings season is slowing down but we still have several stocks from our watchlists reporting earnings next week -> PANW, CBRL, MELI, LOW, BKNG, MRNA, W, COIN, ETSY, INTU, TREE

Macro Analysis

VIX is back up again almost touching 30. And we all know what that means. Total lack of stability, wild swings, possible Bear scenarios developing. Long story short – Chaos! 

I had detailed my approach in a post on Discord last week about how I handle Bear Markets. I am regurgitating it here: 

SPY observations – (Ignoring QQQ/DIA this week as they are moving in sync with SPY)

All signs of recovery vanished last week in a big poof and we are staring at a market which can double bottom or head into Bear territory.

What to watch for in the coming week

  • Ignore any mean reversion technical indicators as they don’t work with sudden market developments like War
  • Just watch price/action with support/resistance zones next week.
  • $428 is critical support and a break below this brings Bear Market scenarios into the mix.  
  • Any bounces that don’t go past $450 cannot be trusted. Watching VIX levels along with price/action will help clarify the direction. 

Portfolio Allocation:

Since I don’t have a crystal ball, I have been following my plan to deal these conditions so far. Markets have been unforgiving and my portfolio is fluctuating between 25% – 30% paper losses. I still have ETF trades expiring all the way into March, but if we head into a Bear Market, they will become losers too. Since I was at 40% allocation last month, I have been carefully deploying cash into new trades on every sign of stability in the markets. My allocation is barely touching 45% right now as I need to have that cash in case we switch to a Bear Market here. Read the plan above on how I will be dealing with Bearish scenarios if they happen. I know this week’s report looks all gloomy but I am just prepping for whatever the market throws my way. 

Key Takeaway: Putin continues to manipulate everything. Save Cash until we see a clear direction!