At the end of February, our biggest concern was the ever-increasing rate of inflation. The U.S. stock markets had dropped considerably last month as they started to factor in a .50 basis points rate hike from the U.S. Federal Reserve Bank. It seems the Reserve’s dovish policies of free and cheap money are finally coming to an end. Markets were factoring in at least seven rate increases by the end of 2022.
As we can see above on the chart of the $SPY, the market made a measured move and a new low. It then moved steeply off that low as the Western world did not restrict the purchasing of Russian oil after it invaded Ukraine.
Russia’s Invasion of Ukraine
What are some of the immediate effects on the U.S. financial markets? The Fed has immediately shelved its .50 basis point hike for March. If we get a rate hike it will likely be .25 basis points. This is why the markets have rallied since the initial invasion. The market has now stopped responding to normal market forces and is only responding to monetary stimulus from the Fed. A second reason for a rally is that no serious sanctions had been imposed on Russia and the West has not stopped buying oil from Russia.
Above, the chart shows oil prices skyrocketed to over $100 a barrel ($USO the Oil ETF was above $70) on the initial invasion. They then backed away to about $90 a barrel once President Joe Biden and U.K. Prime Minister Boris Johnson announced their sanctions which did not include the purchasing of oil and natural gas from Russia.
Gold and silver are also set to make a significant breakout of their long time trading ranges. Continued monetary uncertainty makes these traditional currencies benefit from the flight to safety. Initially, gold was up against its all time high in the beginning of the invasion but has since pulled back. It’s also important to note that silver tends to outperform gold in good times and underperform gold in bad times.
$GBTC (the Bitcoin ETF) has now made a greater than 60% pullback from its high on two occasions. Even if we rally, we no longer expect new highs as per our Fibonacci analysis. Please see our blog on how to use Fib retracements.
Crypto currencies are now trading in tandem with technology stocks. They initially pulled back considerably on the invasion but have since rebounded. Now, they have come off the highs of the rebound, but if continued uncertainties prevail they will settle into a lower trading range. It’s important to know that technology stocks are the most interest-rate sensitive, so they have benefited the most by this delay in increase in the Fed Funds Rate.
As we go into March, there are several factors to consider as traders. More than likely inflation will need to continue to be considered. Oil prices are rising and will drive up prices of many other commodities. It is likely oil will reach its prior high of $147 per barrel if the West cuts off buying oil from Russia. Other items to take into consideration are further interruptions of the supply chain. Ukraine is the largest producer of wheat and grain in all of Europe. Food prices around the world should increase drastically, further exacerbating the inflationary problems of the world.
Whatever happens with the war in the short term, the long term effects on the economy have gotten worse. Due to this conflict, the Fed will not do what it should’ve done long ago of raising interest rates to fight inflation. Inflation could potentially move to hyperinflation and will start to cause stagnation in the economy.
Stocks should move higher in the short term but don’t expect any rally to be long lasting. The underlying market conditions are for high inflation and an evermore stagnant economy with many supply chain problems for the foreseeable future. Let’s end this month’s newsletter with our hearts going out to all those directly involved with the war in Ukraine. We hope this conflict resolves itself quickly with the least amount of collateral damages.
Trade Well.
Registration is now open for our first trading competition of 2022! This competition is open for novice traders. We are currently offering an early bird special for the first week of registration (2/28 – 3/7); save $50 when you sign up this week! Keep in mind that the earlier you sign up, the more time you will have to take advantage of boot camp. Go to 1besttrader.com to learn more and sign up.
What’s New from DAS
While we did release a production update during the month of February, we immediately followed up by releasing beta version 5.6.4.19 for testing and bug fixes. In this beta release, we implemented the following changes:
Display Windows
-Corrected log date after logon.
-Added the advanced Ladder view to Montage window
-Show unmarginable for OTC symbol in Montage window.
-Optimized performance for Alert window.
-Extended montage pref field to support more than 4 chars.
-Added Options Level permissions.
-Added configuration in Setup->Other Configuration for playing sound if stop loss alert is received.
-Removed some PANIC related configuration.
-Market viewer – improved performance.
Charting
-Added options lv1 to chart..
-Added AutoReset to chart alerts.
Hotkeys
-Automatically add “.hkb” suffix when saving hotkey buttons to layout file.
-Added Reverse Position and Flatten Position to prebuilt hotkey script.
-Rectangle trend line – added option to select by border or interior of rectangle.
-Changed HideTrendLine hotkey to HideTrendLineAll, which hides all trend lines in chart window.
-Added HideStudies and HideTrendlines hotkeys.
-Automatically populate share fields from Montage to short locate window for hotkey “NewWindow ShortLocate”.
CMD API
-Added commands SLAvailQuery, $SLAvailQueryRet to query available locate share.
-Added GET LDLU,GET SymStatus commands to retrieve symbol LDLU and SSR etc.
Bug Fixes
-Bug fix – replay price display problem, removed ending ‘.’, for example, from “8.” to “8”.
-Bug fix – route list not reload when switch montage style.
-Bug fix – Double clicking chart links to montage not in currently active tab.
-Bug fix – Imbalance window crash fix.
-Bug fix – Some studies like StoRSI are not scaled properly.
-Bug fix – failed to trigger basket order after triggering primary order.
If you wish to become a beta tester, you will need to fill out the contact form on our website and include the firm/broker you’re trading with as well as your login ID.
Please be sure to install the latest version of the DAS Trader Pro platform. You can do this very easily from DAS by clicking Tools > Auto Upgrade. You can learn more about the Auto Upgrade feature in our Knowledge Base.
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