The madness continues.
I don't have much that's new to say as I've said it all since Thanksgiving, when I warned that Omicron, Labor Unrest and Inflation were brewing a toxic combination, saying:
We're watching the Russell 2,000 closely this week as that index is down 10% from the highs and back to where it's been flat-lining all year. 2,200 is the line to watch and below that, there is not much support all the way back to 1,500, which would be a 33% correction from here – very unpleasant.
So, if the Russell breaks, look for the other indexes, which are only about 2.5% off their highs, to begin catching up and that could get very ugly, very fast and that means we need to be very sensitive to signs of worsening news as a warning to add more hedges. We went over the levels to watch on each of the indexes in yesterday's Live Member Chat Room.
As you can see, the Russell has fallen 16.8% since November but that was not the high, the high for the Russell was 2,460 on November 8th and yesterday's low was 1,925, 21.7% off the high. This morning we are testing the 2,000 line from below and, as before, which side of the line the Russell is on is likely to determine the direction of the markets going forward but, if I was right in late November, the real bottom could be a lot lower than this.
GE lost $3.8Bn this morning and RTX missed expectations but 3M (MMM), who make the masks, are up 1.4% pre-market with better-than-expected earnings. The VIX is as high as it was during the December dip, when the Russell fell 15%, to 2,150 and 15% below that would be 1,827.50 – only 100 points below yesterday's low.
If we keep getting these anemic earnings reports, investors are going to start questioning the valuations that are being asked – even after the recent round of discounting. Omicron is everyone's excuse but it's the lack of stimulus that's showing us how damaged the economy really is for the fist time in 2 years.
IN PROGRESS
