Russian Attack Triggers Surprise Rally Across the Beaten Down Nasdaq-100

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Russia attacked Ukraine early on Thursday. After an initial panic, investors had an interesting response: They piled into software and technology stocks that took a beating over the last two months.

Take a company like Microsoft (MSFT), which pushed under $272 in the opening seconds of trade. That was its lowest level since early July. Buyers immediately pounced, driving the stock back to green within the first hour. It then climbed more than 5 percent to close at its highest level in over a week.

The result was a “bullish outside day,” with a lower low than the previous session and higher high. The pattern is interesting for two reasons. First, it appeared across the tech space in other names like Alphabet (GOOGL), Meta Platforms (FB), Salesforce.com (CRM), Adobe (ADBE) and Oracle (ORCL).

Second, it’s a potential reversal pattern that could signal an end to the bearish trend that began in late 2021. Russia and Vladimir Putin might have given the Nasdaq an unexpected boost. But how?

Putin vs Jerome Powell

“US braces for Russian cyberattacks as Ukraine conflict escalates,” CNN reported yesterday morning. Another headline from Reuters declared “Ukraine computers hit by data-wiping software as Russia launched invasion.”

Dan Ives, a widely followed tech analyst at Wedbush Securities, noted that concerns about Russian cyberattacks could “catalyze an increase in spending” on security software. He said executives and public officials want to protect “datacenters, networks, vulnerability points and other highly sensitive data.”

Microsoft (MSFT), daily chart, with select patterns marked.

Another potential result of Russia’s aggression is a less hawkish Federal Reserve.

“This takes 50 basis points completely off the table,” Mohammed El-Erian told CNBC yesterday morning. (The adviser to Allianz and former CEO of Pimco was referring to the size of the Fed’s rate hike at its Fed’s next meeting on March 16.) He added that, “it takes the 8-9 hikes that a lot of people were talking about for this year off the table.”

That’s a potentially big deal because worries about Jerome Powell sharply raising interest rates was a major headwind for technology stocks. Now it could be less of a risk.

Swift Not Affected

Washington placed new sanctions on Moscow limiting its trade and access to global technology. However Russian banks kept access to the SWIFT banking network, which investors viewed favorably because such a move would hurt European lenders. (Western leaders can brandish this weapon at a future date.)

There were other positive headlines yesterday, like initial jobless claims falling more than expected. Continued claims, or the number of people lingering on unemployment rolls, slid to just 1.476 million. It was the lowest total in almost 52 years, according to the Labor Market. That suggests the economy continues to improve despite the market’s recent volatility.

Don’t forget that we entered the week under a heavy cloud of negativity with bullishness at a six-year low. This can be a contrary indicator reflecting ample cash on the sidelines. It has signaled rallies at other moments like October 2019 and November 2020.

In conclusion it seems that bearish investors had “sold the rumor” about the Fed hiking rates and Putin menacing Ukraine. But then, not only did they “buy the news” when it happened. They also realized that the Fed could be less hawkish and tech stocks may get an unexpected boost. What if the news everyone feared isn’t so bad after all?

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