How Low Can Stocks Go as Russia Invades Ukraine? The Chart Hints.

How Low Can Stocks Go as Russia Invades Ukraine? The Chart Hints.

When I woke up this morning, the S&P 500 futures were down 100 and the Nasdaq was down almost 500 points.

It was an ugly start to the day, but the situation has improved considerably since the open. The S&P 500 is down 0.8% as Russia invades Ukraine.

The news sent silver and gold higher on the news, while oil hit $100 a barrel this morning.

We thought oil would hit $100 a barrel, but this is not exactly the ideal scenario for it to happen.

While the Russia-Ukraine situation was already a headwind, this latest development only adds more pressure to an already volatile situation — both geopolitically and with regards to the stock market.

The U.S. equity market is now contending with rates hikes from the Fed, soaring inflation, a bear market in many growth and tech stocks and now these developments in Eastern Europe.

Trading the S&P 500

Daily chart of the S&P 500.Chart courtesy of TrendSpider.com

I must say I’m impressed with today’s move, although given the size of the gap-down, I’m not surprised that the market is bouncing.

This morning I noted that I expected some sort of bounce off the open. My guess was that investors’ll buy the open and sell it later.

Now the question becomes, when’s “later?”

The S&P is bouncing nicely off the opening lows. Will resistance come from one of the short-term moving averages on the shorter time frames, or will the S&P rebound all the way up to last month’s low?

If it’s the latter, the $420 area is on the table for the SPDR S&P 500 ETF  (SPY) – Get SPDR S&P 500 ETF Trust Report. For the S&P 500 index that’s 4222 and for the S&P futures (the ES) that’s ~4212.

Above last month’s low could put the fourth-quarter low back in play. For the SPY that’s near $426. If it can clear this area, we could see a push up to the short-term daily moving averages.

If last month’s low is resistance, it leaves today’s low vulnerable to another retest. Unless the situation in Eastern Europe improves, today’s low could certainly be retested in the days and weeks ahead.

If the selling really picks up pace, this is where I’ll be paying attention. 

Below today’s low could open the door down to the $397 to $400 area. That’s the 161.8% downside extension amid this “ABC” correction. It’s also where the 21-month moving average comes into play.

This to me should be a zone at which the bulls can buy, but we’ll see whether the S&P even gets there. If it happens, the S&P 500 will be down a little over 17% from the highs. 

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