Russia- Ukraine crisis is going to break one way or the other very soon

The tension of this crisis is reaching a crescendo. You can just feel that it's going to break one way or the other very soon. . Russia keeps insisting it won't invade but it keeps amassing troops, equipment and supplies - at least this is what we are being told. The West keeps threatening heavy sanctions and financial markets have responded in kind by punishing Russian stock market and the Russian Ruble which has lost 2/3 of its value in the past 10 years. The question you have to ask is this. Who has more to lose? It would clearly be Russia...so it seams. So, if you are Putin and you know you're in a weak position from the start, what would you do if you wanted to extract the most amount of demands? You would do exactly what he is doing now - make it look as if you are capable and willing to carry out your threats even if that means destroying yourself in the process.  Push things to the absolute brink in order to get maximum return.  If I'm wrong, then Putin has lost his mind and is going to go kamikaze. Now, put yourself in the shoes of the West. You have the superior economic and military advantage to not give in to all of Russia's demands. Russia has more to lose choosing war but you will still lose. You still want to avoid or minimize loss and so are willing to make some concessions but only if the threat is credible. The more immanent the threat appears to be, the more credible it is and the more likely you are to make concessions but since you're in a position of strength, there's only so far you will go.  

The latest drama as I type this is Putin's decision to recognize separatist regions in Donbass as independent. If he does,  that would clearly be an escalation in the crisis as it shows a lack of good faith and opens the door for Russia to provide military support for the separatists in this region. There is also the prospect of a face to face summit between US,and  Russia. This crisis is going to break in one direction or the other in a major way quite soon, I would guess either this week or next. 

Obviously the market is fixated on the day to day drama of this crisis which will make for treacherous short term trading. The bears have overall control as the pressure is clearly on the downside. I'm seeing more signs of excessive pessimism. AAII sentiment is now clearly at historical extreme bearish territory. People have been piling aggressively into puts as the put/call ratio has been above 1 pretty much daily even when the market shows green. On the day when the market popped due news that Russia troops were being withdrawn the put/call ratio spiked to 1.3.  This shows that traders are now clearly favoring selling into strength. When bears press like this and get away with it, it's unusually late in the game for the downtrend more so in terms of time rather than price i.e. number of days left before things reverse. There has also been a major unwind in the excessive speculative behavior of traders in their use of leveraged ETFs and call options in 2021. The major missing piece of the puzzle is equity fund inflows which has been stubbornly positive YTD. I can see this week is poised for a negative inflow but we really need to see a capitulation here i.e. like $-20 M week.  NAAIM is back to 53 but again, need to see more capitulation here. With the market poised to retest or break the January lows, I think capitulation is coming. We'll see what the data shows Thursday. Until I see sufficient capitulation I will not attempt to bottom pick. 

The bottom line is that we are seeing signs of  excessive pessimism but there's holdouts, mind you, I find that there's always at least one holdout at a bottom as the indicators are rarely 100% in agreement. There's room for the market to have a breakdown lower given the precarious technical and fundamental condition of the market with the market in a ST downtrend threatening to break down to new lows and with bond yields and oil prices still near the highs.  Keep in mind, at market lows things look ugly and it feels like there's more pain in store. That's how lows get made. Overall though, the benefit of the doubt can't be given to the bulls at this point. The Russian stock market is getting destroyed today down 13% while US market is closed. Obviously this does not bode well. 

Update: Putin has declared the separatist regions of Donbass as independent which obviously is a negative towards finding a diplomatic resolution to this crisis. Futures were already in the red prior to this news and didn't change much but I can't see how the market doesn't gap down tomorrow. The only silver lining I see here is that this brings us closer to capitulation. In the long run this Russia-Ukraine situation is going to be trivial when it comes to the stock market since earnings are paramount to everything but it's certainly not going to help in the ST as the market was already dealing with jitters from higher expected interest rates due to inflation. At some point though, the narrative is going to get priced in because interest rate fears and Russia fears have been front and center stage for a while now. In my opinion, that pricing in requires capitulation from these stubborn BTFD buyers. I think we get that this week. The uber bear case is that the capitulation is just getting started. . I'm not so sure about that although like I said, I'm not giving the benefit of the doubt to the bulls.