by Ivan Martchev
May 17, 2022
There was a strong rebound on Friday, but it wasn’t strong enough to prevent a down week for most indexes. I think we are due for a big rebound after being down six weeks in a row, as there is clarity on the interest rate front, with the Fed committed to 50 basis-point hikes – and we are basically oversold.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
A 10+ percent rally in the S&P 500 or Nasdaq 100 takes us to around 4,300 on the S&P or 13,500 on the Nasdaq 100, which basically are the post-FOMC highs on those indexes. We can always overshoot, but a good target is the downtrend that lies between the 50-day (10-week) and the 200-day (40-week) moving averages. I know it feels like we have traveled a lot, but getting there – in late May or early June – seems like the more reasonable course of action, given the increased amount of clarity introduced by the Fed.
To use some Greek mythology, for the sake of the argument, the shorter-term moving average can be named Scylla, while the harder-to-get-to longer-term moving average we can name Charybdis. The downtrend line is the midpoint between the two. I would say that the higher moving average is the best-case target for a rebound, while the lower moving average is the lower target. In the short term, this is the best we can hope for in the next 4-6 weeks, which would be a welcome change from the past six weeks.
One situation that can spoil this setup is Ukraine, if the conflict were to spiral out of control. Right now, the Russians seem hell bent on carving out a part of the South – at least that is what they want everybody to think – but we can never be sure if those plans won’t change. The war turned out to be one heck of an economic event, and one of my bigger concerns is a huge spike in the price of oil to the $150s or higher.
The Russian Ruble is on a Moonshot
The Russian ruble has appreciated dramatically from its post invasion low in the 130s (to the dollar) to close Friday at 64 per dollar on the USDRUB cross rate. That’s basically doubling in value in short order. (Fewer rubles per dollar means a stronger ruble on an inverted scale).
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The setting of gold’s price at 5,000 rubles per gram of gold, as well as a policy interest rate of 14% (after spiking to 20%) helped the ruble, and so did the clever mechanism of paying indirectly for Russian natural gas in rubles. Foreign buyers of Russian natural gas pay their contract rates in euros at Gazprombank, which then buys rubles and sends the rubles to Gazprom as the final payment. This is a mechanism to prop up the ruble, and it is working remarkably well, combined with the domestic convertibility into gold bullion that is the only limited “gold standard” in the world at the moment.
I do not know of one person that saw this monstrous rally in the ruble ahead of time.
All content above represents the opinion of Ivan Martchev of Navellier & Associates, Inc.
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Could China Push the World into Recession?
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It’s Crunch Time for The Oil Market
Growth Mail by Gary Alexander
Happy 230th Birthday to Wall Street, the U.S. Dollar, the U.S. Army, . . .
Global Mail by Ivan Martchev
Stock Market Headed Between Scylla and Charybdis
Sector Spotlight by Jason Bodner
When Will the Selling End?
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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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