Jump to content

S&P 500 Tanks as Rising Tensions Between Russia & Ukraine Spark Flight to Safety


Recommended Posts

S&P 500 OUTLOOK:

  • Geopolitical tensions fuels volatility and weigh on risk assets
  • The S&P 500 drops more than 2% on fears Russia could launch an offensive and invade Ukraine any moment
  • Technical analysis suggests the S&P 500 could head lower in the coming days
 

Most read: Dow, S&P 500, Nasdaq Price Forecasts - Bears Brewing as Risk Rise

Volatility has been extreme on Wall Street this year. The Federal Reserve’s transition to a tighter monetary policy stance in response to soaring inflation has weighed on sentiment, prompting investors to de-risk their portfolios and shun bets on growth and tech plays amid rising Treasury rates.

The simmering conflict in Eastern Europe has made matters worse, contributing to market anxiety and leading stocks to swing wildly with no clear direction. The current price dynamics highlight a key fact: geopolitical tensions are very difficult to trade, especially if the situation is fluid and ambiguous. Against this backdrop, the S&P 500's performance has been mixed this week, down 2.12% to 4,380 on Thursday on risk-off mood and flight to safety, after climbing roughly 1.7% in the previous two sessions.

With the Russia-Ukraine standoff heating up by the hour, volatility will remain elevated and unpredictable, leaving markets at the mercy of the headlines that cross the wires. At this point, it is difficult to say how the crisis will unfold, but the United States and its allies seem convinced that President Putin may launch an offensive and give the order to invade Ukraine soon, perhaps in the "next several days."

Although The Kremlin denies weighing on attack, satellite imagery and intelligence point to a continued buildup of Russian military forces in several locations near the Ukrainian border, a sign that an incursion is possible. To avoid being caught in losing positions, traders may want to wait out and limit directional speculation, at least until there’s concrete evidence diplomacy has created a détente or war has broken out. In any case, we should have more information in the coming days and weeks, but two possible scenarios are highlighted below:

  1. Russia invades Ukraine – A sharp downward reaction in stocks is likely, although energy stocks could hold up on the expectation that economic sanctions on Moscow could lead to a disruption in energy supplies and thus higher oil and natural gas prices. All in all, any pullback in the broader market may be transitory, as the crisis should not have a material impact on the global economy.
  2. Democracy prevails, Russia decides to continue dialogue - We could see a relief rally, oil prices could drop significantly as the geopolitical risk premium decreases. As frictions ease, monetary policy should come back into focus, with the Fed meeting in March closely watched.

S&P 500 TECHNICAL ANALYSIS

On Monday I talked about a double top formation in the S&P 500. The bearish pattern has been confirmed, suggesting that the index’s balance of risks is skewed to the downside, a situation that may pave the way for a move towards the 4,300 psychological level in the coming days.

However, if dip buyers resurface and prices reverse higher, the first resistance to consider appears near the 200-day SMA and then at 4,490, this week’s high. If the S&P 500 manages to clear these hurdles, bulls may find momentum to drive the index towards 4,520, the 50% Fibonacci retracement of the January selloff.

S&P 500 TECHNICAL CHART

sp500 chart

S&P 500 (SPX) Chart by TradingView

EDUCATION TOOLS FOR TRADERS

  • Are you just getting started? Download the beginners’ guide for FX traders
  • Would you like to know more about your trading personality? Take the DailyFX quiz and find out
  • IG's client positioning data provides valuable information on market sentiment. Get your free guide on how to use this powerful trading indicator here.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

Diego Colman, Market Analyst, DailyFX
18 February 2022

  • Like 1
Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • General Statistics

    • Total Topics
      21,632
    • Total Posts
      91,900
    • Total Members
      41,915
    • Most Online
      7,522
      10/06/21 10:53

    Newest Member
    TraderDanielDK
    Joined 25/03/23 21:50
  • Posts

    • Charting the Markets: 24 March The FTSE 100, DAX 40 and Nasdaq 100 slide on renewed banking woes while EUR/USD, EUR/GBP and GBP/USD drop as the US dollar, gold appreciate due to flight-to-quality flows. Crude oil and copper tumble on recession fears.  Axel Rudolph FSTA | Senior Financial Analyst, London | Publication date: Friday 24 March 2023         This is here for you to catch up but if you have any ideas on markets or events you want us to relay to the TV team we’re more than happy to.  
    • Market Breakdown | WTI Oil, EURUSD, GBPNZD, EURAUDHere are the updates & outlook for multiple instruments in my watchlist.1️⃣ WTI Oil daily time frame️The market is trading in a long term bearish trend .After the last sharp bearish movement, the market is steadily recovering.Ahead, I see a major horizontal supply area.Probabilities are high, that the next bearish wave will initiate from there.2️⃣ EURUSD daily time frameAfter a breakout of a solid daily resistance, the market is preparing for its retest.Watch carefully the underlined zone and look for buying opportunities from there.3️⃣ EURAUD weekly time frameThe pair is currently approaching a weekly horizontal resistance cluster.Taking into consideration, that the pair is quite overbought, probabilities will be high to see a pullback from that4️⃣ GBPNZD daily time frameThe pair is currently retesting a broken neckline of an ascending triangle . As we discussed earlier, the trend line of a triangle and its neckline compose a contracting buy zone now.Chances will be high that the next bullish wave will initiate quite soon.For Additional confirmation use: Divergence Indicators
    • #CHFJPY: Classic Bearish Setup 🇨🇭🇯🇵   🔻CHFJPY has nicely respected a confluence zone based on a horizontal 4H resistance and a 0.5 retracement of the last bearish impulse.   The price formed a double top pattern on that and broke its neckline.   Probabilities will be high that the pair will drop lower soon. Goals: 141.172 / 140.363  
×
×
  • Create New...