Russia Invades and things look bleak

I said that I could just feel that the Russia-Ukraine situation was going to break one way or the other and did. Sadly, not in good way. Putin has basically said that Ukraine doesn't deserve to exist and it belongs to Russia. He made his resentment of the break up of the Soviet Union quite clear. People knew this but he's now acting on it. Oil has now spiked to $100. As I type this the market is attempting to recover from a gap down opening on the news overnight that Ukraine is being attacked on multiple fronts. There's  talk about how bottoms happen once an invasion has occurred. I'd much rather see signs of people fearing the worst  rather than say stuff like this because while it is true, in all those previous occasions you had capitulation.  I'm no so sure we have seen enough. NAAIM sentiment has declined to 44 which is bottom territory for run of the mill corrections/pullbacks but it seems to be declining grudgingly. I want to see this at 30 or less. Put/call ratios are high but could go higher although I wouldn't say they are a major holdout. Fund flows look poised to show a negative print this week...we'll see but there is still a ways to go before all the YTD flows get unwound. We saw the VIX spike to 38. High, but certainly can go higher during major panics/declines. AAII sentiment and Investor's Intelligence sentiment are the only indicators that are showing high enough extremes, but I place more emphasis on what people are doing with their money rather than what they are feeling. 

The potential silver lining is that the Fed may end up backing off from it's aggressive rate hike plans which is what they should have done in the first place. It is clear as day that inflation pressures are primarily due to supply issues which higher rates are not a cure for. The lesser evil is for rates to stay low and we live with higher inflation for a while. Perhaps this war will make for a good excuse for the Fed to adapt this narrative and do a dovish pivot. I will not hold my breath for this but it's definitely a possibility and it looks like the market is pricing that in to some degree as odds for a 50bps hike in March are now low. 

I keep thinking of all that diamond hand nonsense and retail mania last year at this time and it makes me think that this could be indeed the start of a major bear market because that's what often follows. Even if that's the case, I do know that you get interim rallies on the way down. The problem is that if you look at 2001 or 2008 the market basically slid for the first 3 months of the year before bottoming temporarily in late March. I get that there's different circumstances but it shows you how relentless the downside could be. 

It feels utterly hopeless. Thinking of the market makes me nauseated. It feels as if it's a sitting duck to get hammered relentlessly.  I know it's supposed to feel that way near a bottom, but again, I'm not holding my breath. I have no problem if this post ends up being the ultimate contrarian indicator and it makes me look like a goat.  I think I marked the bottom in March 2020 with a similar post but I don't think so this time. It seems things can and will get worse before it gets better. I'm sure people would like to think that it's all priced in now. Is it? Or is it just wishful thinking? Again, I defer to signs of capitulation. Can we see more of it which causes further downside? Absolutely. 

Update:

Fund flows were flat for the week. That doesn't take into account today's action but this is still very  disappointing. Huge reversal in the market today but this reminds me a lot of what I saw in October-November 2008.  Until I see proper capitulation  I will have my doubts that we are out of the woods.