by Ivan Martchev

March 1, 2022

The stock market last Thursday behaved like the missiles were falling on Baghdad in March 2003, when a great market rally began, launching a new bull market that lasted for almost five years. There are some great differences, of course: The Baghdad rally came after a long bear market; also, 2003 was the U.S. punishing a dictator, Saddam Hussein, and U.S. stock valuations were depressed. Now, it is Russia shooting missiles in Ukraine, we have not had a long bear market and stock valuations are not depressed.

Furthermore, we have the Federal Reserve to worry about. However, I think that we made a pretty good stock market bottom that can only be spoiled by two things: The Fed and Ukraine. The Fed can spoil it by being too aggressive at the onset of their tightening cycle, which they should not do while the Ukrainian issue is unresolved; or this war can spoil it if it is not over soon – which is impossible to predict now.

At this time, it would appear that Russia is running with an expanded version of the “Finland playbook,” based on the fact that Joseph Stalin did not like seeing Finnish borders too close to Leningrad (now Saint Petersburg), so he created a “buffer zone” in two  wars with Finland, one at the onset of World War II (before Germany invaded the Soviet Union) and another one while Germany was in retreat in 1944.

In the end, Finland lost about 10% of its territory and the Soviets got their buffer zone. Russia’s goal appears to be to get Donbass (Donetsk and Luhansk) and Crimea, and neutrality for Ukraine from now on, which is not dissimilar from what happened to Finland, but arguably much larger in scope.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The Nasdaq 100 is one of the most popular indexes that encapsulates the imagination of millions of investors, with access to all the FAANG stocks and the popular ETFs and more nefarious leveraged ETFs. The NDX (for cash buyers) or the zappier NQs (for futures traders) is a high-beta large-cap growth index. Where the NDX goes, that’s where the Nasdaq Composite goes, with tiny differences.

For my money, this chart formation looks like a successful retest, with one close below the January intraday lows. I think the NDX will rally towards its February highs – it may exceed them – but a pretty good target for the time being would be its still-upward-sloping 200-day moving average (DMA).

As long as the 200-DMA is upward sloping that’s a good thing. The catalysts for a rally would be an armistice in Ukraine and a path forward where the hostilities stop – plus a Fed that is not overzealous.

Keep in mind that the inflation numbers started to pick up in March and April of last year. In March and April of this year, we will be comparing high numbers on the CPI Index to high numbers from a year ago. The base effects would cause the rate of change to start to decline. If bottlenecks start to improve – and they are – the inflation rate should trend from 7.5%-8% down to 3.5%-4% by the end of the year.

If the Fed does not overshoot and a Ukrainian armistice holds, the stock market can make it quite a bit further than the 200-DMA on the NDX, which for the time being is a good target.

Surprising Moves in EU Natural Gas

Not many would have predicted that Gazprom would pump much natural gas through Ukraine in the middle of an invasion – enough that it would affect the European natural gas market and crater futures for EU delivery – but the bright red cells in the table below reflect the one-day move in natural gas futures for EU and UK delivery, which were down by 32% at the close on Friday.

On Thursday, when the hostilities began, both contracts were up 60%, again in a single day.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

If the Russians are not cut off from SWIFT completely (at the moment, only some banks are), they may keep pumping gas like it’s the end of the world, exercising their soft power to help Europe in a difficult situation, where the botched de-carbonization policies of the EU caused natural gas to trade to a $250/bbl crude oil equivalent price in December. Those prices are up five-fold in a year, despite Friday’s move.

Those EU TTF natural gas futures look like they are forming an interesting head and shoulders top with a neckline at 75 Euros. If Gazprom were ordered to do so, it could crash the nat-gas market in Europe and give the Old Continent a big economic boost in a difficult situation. One has to wonder if that strategy will be used for political goals, which would be exactly the opposite of what Europe feared originally.

On the other hand, I wonder if the same strategy can be used in reverse, if all Russian banks are expelled from SWIFT. If Russians can’t get paid for the natural gas, will they keep pumping? Sanctions that could cause even more volatility in global markets are those on the Russian central bank, the outcome of which is impossible to estimate at present, given likely contingency plans that were made before the invasion.

Still, a disorderly unraveling of the Russian financial system will likely spoil the present positive setup and make the situation unpredictable.

All content above represents the opinion of Ivan Martchev of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
The Stock Market Delivers a Successful Retest

Sector Spotlight by Jason Bodner
Markets Often Over-React – in Both Directions

View Full Archive
Read Past Issues Here

About The Author

Ivan Martchev
INVESTMENT STRATEGIST

Ivan Martchev is an investment strategist with Navellier.  Previously, Ivan served as editorial director at InvestorPlace Media. Ivan was editor of Louis Rukeyser’s Mutual Funds and associate editor of Personal Finance. Ivan is also co-author of The Silk Road to Riches (Financial Times Press). The book provided analysis of geopolitical issues and investment strategy in natural resources and emerging markets with an emphasis on Asia. The book also correctly predicted the collapse in the U.S. real estate market, the rise of precious metals, and the resulting increased investor interest in emerging markets. Ivan’s commentaries have been published by MSNBC, The Motley Fool, MarketWatch, and others. All content of “Global Mail” represents the opinion of Ivan Martchev

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