Monday saw turmoil in global markets that, although fairly contained in both the U.S. and most of Europe, did serve as a reminder that risk happens fast. It was a classic risk-off day in many respects, with gold, oil and bonds trading up, while equities and high yield got hit, and energy stocks dipped to a lesser extent.
As the day began, many clients asked me whether this was the beginning of the end for the multiyear cyclical bull market, which as the day drew to a close morphed more into a question whether the selloff was over.
How long the Russia-Ukraine crisis will get drawn out is likely anybody’s guess at this point. But if history is any guidance, then Russia is unlikely to press hard on Ukraine on the military front, considering that the majority of Russian citizens oppose a war and President Putin has rarely gone against the public majority opinion.
Through the technical lens, Monday’s move in the S&P 500 has done nearly zero damage. While I use the 50-, 100- and 200-day moving averages for medium- to longer-term trend measurement, the 8- and 21-day moving averages often allow for good near-term support and resistance zones. Monday’s selling did take the index back below 1850 — by less than four points — but it thus far failed to break the 8-day moving average (blue line). Should the 8-day moving average get broken, then a next better support area is between 1815 and 1820, which is where the 21- and 50-day moving averages currently reside.
Technical jargon aside, Monday’s selling is not yet any major red flag.
More importantly, some of the key sectors of the S&P 500, such as energy stocks and industrials, don’t yet look ready to turn over. At some point over the next three to six months, chances are that this cyclical bull market will draw to an end. But until price action gives us better clues, at least marginally more upside looks to be in the cards.
Energy stocks — as represented by the Energy SPDR (XLE) — have rallied sharply off the early February lows and since moved into lateral resistance. This type of triple-top more often than not leads to higher highs, and this is why I see more opportunities on the long side in some energy stocks. I also see inflation accelerating and the price of oil rising (partially due to the Russia-Ukraine crisis), which should be good for select energy stocks.
On the single-stock front, oil and gas exploration company Devon Energy (DVN) showed great technical strength in recent weeks as it found good support at the 200-day moving average in early February.
Over the past two weeks, DVN stock has begun to consolidate the February bounce, which thus far is taking place in a technically constructive manner.
If and when the stock can muster a move above $65, upside should open up toward the high $60s.
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Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.