Trade on Monday could not have been worse for bulls, states Jon Markman, editor of Strategic Advantage.
After trading punches with bears for more than one month, bulls allowed the benchmark S&P 500 (SPX) to have its first close below the January 24 low at 4,222. The benchmark finished at 4,201, a loss of 3%.
This is probably a knockout for bears. With the month-long trading range broken, they should have an uncontested run at the next critical support level at 4,115. That represents a further loss of 2%.
News-driven stock markets can be unpredictable, however I expect any early kickback attempt on Tuesday will be met with aggressive selling.
If bulls fail to hold support for the S&P 500 Index at 4,115, the index could tumble all the way to 3,990. There is important overhead resistance at 4,375.
The Upshot
The Nasdaq (NQ=F) slumped 3.6% on Monday to 12,830.96. The Dow (YM=F) dropped 2.4% to 32,817.38.
Breadth favored decliners six-one, and there were 1481 new lows vs 363 new highs. Big caps on the new high list included Exxon Mobil (XOM), Chevron (CVX), PetroChina (PTR), Union Pacific (UNP), and ConocoPhilips (COP). Like last week, it’s all energy and railroards.
Consumer discretionary and technology stocks paced the broad decline, with energy and utilities the only green sectors. West Texas Intermediate crude oil jumped 3.7% to $119.94 a barrel as discussions continued between the US and Europe about a ban on Russian crude. The WTI touched the $130 per barrel mark earlier in the session.
Stifel on Monday said imposing sanctions on Russian energy exports poses minimal threat to the US economy but would be much more painful for European countries. "Sanctions against Russia have been fierce and swift but have largely avoided the country's energy market," said Lindsey Piegza, the investment bank's chief economist, in a note. "As the conflict continues, pressure is mounting for penalties to extend to Russia's energy exports to inflict economic pain on the country."
Meanwhile, the US is reportedly willing to impose a ban on Russian oil imports even without the participation of its European allies, Reuters said Monday late afternoon, citing "two people familiar with the matter."
The third round of talks between Russia and Ukraine on Monday ended without any major breakthroughs, according to media reports.
The 10-year US Treasury yield rose three basis points to 1.75%.
Gold (GLD) breached the $2,000 mark in overnight trading for the first time in 19 months as Russia continued its invasion of Ukraine. Gold for April delivery rose by 1.7% to $2,000.60 per troy ounce.
In US company news, American Express (AXP) said it would suspend all operations in Russia. Shares of the credit card company slumped 8%, the worst performance in the Dow.
Bed Bath & Beyond (BBBY) gained 34%, advancing as much as 86% earlier, after GameStop (GME) Chairman Ryan Cohen disclosed a 9.8% stake in the retailer through his RC Ventures investment company. In a letter to board members, Cohen criticized the company's executive pay, shareholder returns, and growth strategy. He urged the board to explore strategic alternatives.
