Following the worst performance by the S&P 500 since November, the market is seeing a little bounce action here on Tuesday morning. Oil and metals continue to run higher, and there isn't any major news flow about the Ukraine crisis right now.
Traders are looking for some big headlines to trigger the next tradable setup. At this point, the primary issue is if and when Putin will take control of Ukraine. The consensus is that it is inevitable, but it has been far more difficult than Putin anticipated, and that is likely to cause a shift in his longer-term plans.
There is a tremendous amount of uncertainty, and that is preventing dip buyers from doing much. There are some fantastic opportunities developing, but the fundamentals are meaningless right now, and attractive valuations will not protect us from more downside.
What traders really want is a panic selloff on negative news to trigger capitulation. That sort of thing never plays out easily, but if there is a sharp drop due to the Russian conquest of Ukraine I suspect we will see a lot of "buy the bad news" interest, and I look for some buyers to anticipate that action even before the news event hits.
From a technical perspective, one of the more interesting developments is that the indexes and big-caps are catching up to the downside. The Nasdaq finally has fallen into a technical bear market with a drop of 20%. There is still a tremendous gap between the indexes and many stocks that started downloading in February 2021, but there is progress toward conditions that will support a good tradable low as the news flow evolves.
I'm holding a high level of cash but have a number of positions that I believe are fundamentally solid that I want to add to on relative strength. There is elevated volatility that can evoke an emotional response, but I believe we are moving closer to the point where a strong bounce will develop and cause a scramble among underinvested bulls and overly aggressive bears. It is a matter of timing, and for now we just have to stay patient.
The early bounce action is improving, but news headlines will drive the action.
