Growing indications Russia is building up troops on the Ukraine border suggests Putin is preparing to invade.

Market Statistics

Just when traders thought it was safe to go back into the market the bottom fell out again. Earlier in the day Ukraine warned that Russia had restored its combat readiness by moving more than a dozen battalion sized combat groups to the Ukraine border. A Ukrainian military spokesman said Russia has moved 192 warplanes, 137 helicopters, 160 tanks, 1,360 armored vehicles and 45,000 soldiers to the border. Russia began a five-day exercise involving more than 100 planes on Monday and some of those briefly crossed into Ukrainian airspace. In the past seven days more than 6,200 people escaped their homes with another 117,000 already displaced inside Ukraine. According to Russian data about 730,000 people fled to Russia when the separatist conflict began. Originally there were only 300 separatist rebels and that number has swelled to 15,000 in recent weeks.

More than 65 towns have been retaken by the Ukraine military and the rebels hold less than half the territory they controlled just four weeks ago. The continuing advances by the Ukrainian military apparently have aggravated Putin and put him in fear of losing the war. His rapid mobilization of troops and equipment are either to invade Ukraine on a "peacekeeping or humanitarian mission" or to threaten and intimidate Ukraine into some kind of settlement. I believe Russia will invade and call it a humanitarian mission to restore peace in the area. Russia's foreign ministry said eastern Ukraine was nearing a "humanitarian catastrophe" and requires immediate international assistance. This appears to be a telegraphed message of what is to come.

Putin has ordered the government to prepare a response to the U.S. and European sanctions. One such response reportedly being considered is to restrict Siberian airspace for Western airlines. This would significantly lengthen their routes and send fuel costs much higher. Some routes would have to be changed dramatically and possibly cancelled. Reports from Moscow claim they are going to prohibit bourbon from Kentucky because of quality control standards. I warned about this last week. Putin frames his restrictions in a public safety format rather than saying it is a rebuttal to sanctions. Welcome to the new cold war.

The Dow dropped more than -100 points at 1:30 when Poland and Estonia both warned a Russian invasion of Ukraine was imminent. Polish Foreign Minister Radoslaw Sikorski told TVN24 TV "That is a lot of equipment. This is the sort of thing one does to exert pressure or to invade."

The Dow declined -198 at the lows but rebounded slightly at the close for a loss of -140. The S&P came within a point of retesting the 100-day average at 1912 and the Nasdaq barely managed to close above 4350. It was not a fun day.

The biggest economic report of the day was the ISM Nonmanufacturing commonly referred to as ISM Services. The headline number came in at 58.7 and the highest reading since the 59.7 in February 2011. New orders rose from 61.2 to 64.9 and the third consecutive month above 60. This is a proxy for what to expect in future months from the rest of the internal components.

The business activity component rose sharply from 57.5 to 62.4. However, backorders were flat at 53.0 and inventories declined from 53.5 to 51. Employment rose from 54.4 to 56. The services index has been improving steadily since January and suggests the economy is improving.

One exception to the good news was a drop in export orders from 55.0 to 53.0 and probably a sign the sharply rising dollar has already started to slow purchases from overseas.

This report will be negative for the Fed's policy. The continued strong growth in services will bring the inflation hawks front and center and the potential appears to be growing for rate hikes sooner rather than later.

Factory Orders for June rose +1.1% and a three month high compared to a -0.5% decline in May. The expectations were for a gain of +0.6%. Durable goods orders were revised up from +0.7% to +1.7% for June. Defense orders rose +6.9% after a -24% decline in May. This report will have a positive impact on Q2 GDP revisions.

The calendar for the rest of the week is light with no reports that could rock the market. This is the lightest three day schedule I can remember.

The earnings calendar is also weak. The biggest names for Wednesday are Green Mountain, Time Warner and Dish Networks. Once this week is over there will be very few companies left to report.

After the bell today Disney (DIS) reported earnings of $1.28 compared to estimates of $1.16. Disney earnings were powered by two major films, Captain America and Maleficent. They were still reaping profits from the largest animated film ever with Frozen. At the same time Guardians of the Galaxy opened last weekend with the largest August box office ever at $94.3 million.

The acquisition of Marvel in 2009 and Lucasfilm in 2012 has given Disney a huge content production force and with Marvel there are dozens of characters that will be given new life on the screen.

Disney saw profits at the theme parks increase +23% to $848 million. They raised the entry price to the Magic Kingdom twice in the past year.

Shares of Disney were unchanged in afterhours trading. Shares have been stuck at the recent highs for the last month after many months of gains.

MGM Resorts (MGM) reported earnings of 21 cents compared to estimates of 10 cents. The company bragged about progress on the new casino in Cotai that will have three times as many rooms as the MGM Macau. The company said it is on budget and will open on schedule in 2016. They also have a $375 million arena under construction on the strip in Las Vegas. They are also renovating the Mandalay Bay in Vegas and it will reopen as the Delano Las Vegas and will cater to a higher paying customer. Shares declined slightly after the report.

First Solar (FSLR) reported earnings of 4 cents compared to estimates for 37 cents and comparisons of 37 cents in the year ago quarter. Revenue rose +4.7% to $544.4 million. They raised the expectations for expenses for the full year from a median of $375 million to $387.5 million. They also cut their production guidance from 1.9-2.0 gigawatts to 1.8-1.9 GW. The blamed the earnings shortfall on some project delays in Q2 that resulted in deferment of some earnings until later in 2014.

That big of an earnings miss would normally crater the stock. Today FSLR shares declined -$3 in afterhours and that was a minor drop compared to what I would have expected.

Zillow (Z) reported a loss of 5 cents compared to estimates for a 4 cent loss. This compares to a 30 cent loss in the year ago quarter. Revenue rose +68% to $78.7 million and beat estimates of $76.5 million. The raised full year guidance for revenues in the range of $322 million compared to analyst expectations of $311 million. Revenue in Q3 is expected to be $87.5 million and 5% over analyst estimates. Shares declined about $2 after the report.

Expeditors International (EXPD) reported earnings of 46 cents compared to estimates for 47 cents. Revenue rose +6% to $1.6 billion and in line with estimates. Gross margins declined from 31.4% to 30.3%. Shares of EXPD declined -5% on the news.

Late today Twenty-First Century Fox pulled its $80 billion offer to buy Time Warner (TWX). The surprise announcement caught investors off guard. Rupert Murdoch cited Time Warner's management and its board's refusal to come to the table to discuss a takeover as one reason for the sudden cancellation of the deal.

Murdoch said the proposal had significant strategic merit and compelling financial rationale and our approach had always been friendly. He said management and the board refused to engage with us to explore the offer. Several analysts said this cancellation would put pressure on Time Warner management to justify why they would not discuss the offer and they speculated this was a negotiating ploy by Murdoch to force Time Warner management to negotiate.

FOXA shares rallied +$3 after the announcement to close the afterhours at $34. Shares had collapsed from $36 after the original offer was made. Time Warner shares fell -$9 in afterhours to close just under $77.

Bloomin Brands (BLMN) collapsed -23% after reporting earnings of 27 cents that missed estimates of 29 cents. Revenue rose +9% to $1.11 billion to beat estimates slightly. The company cut its outlook for the full year from $1.21 to $1.05-$1.10 compared to analyst estimates for $1.22.

The market was trending lower before the Ukrainian news hit the wires. Everyone blamed it on the Polish foreign Minister's remarks but the news had been out for several hours. I read the first draft on Bloomberg about 11:30 ET. Art Cashin was on CNBC warning to watch out for a drop below the morning lows at 1926 and that of course happened at the same time as the Polish comments. There was a mixture of technical weakness and headline weakness that hit about the same time. The S&P had declined to trade in the 1928-1930 range just before the Polish headline broke.

The problem we have tonight is a new intraday low at 1913 that was below Friday's low at 1916. The rebound from that loss was lackluster to close at 1920. The 100-day average is 1912 and uptrend support is around 1900. If the S&P makes a lower low on Wednesday it would be a technical breakdown that could take us to 1900 or even 1885.

If Putin really wanted to cause problems for the U.S. he could produce a headline in the middle of the trading day 2-3 times over the next week and we would be significantly lower. It would not cost him a thing but the effort to make up the headlines. However, I believe he is going to invade the Ukraine and that is going to be market negative. The U.S. won't respond militarily but it means the sanctions are going to worsen and the impact to Europe is going to be ugly with a new recession likely.

The market still has a lot of bulls hoping to buy the dips thanks to the strong earnings and surprising economics. However, the multiple headlines from geopolitical events are probably going to continue to weigh on stocks. This is the perfect month for ugly headlines since it is typically the worst month of the year for the markets.

The Dow was down nearly -200 points at the lows and recovered to end down "only" -139. I doubt anyone is actually cheering for that rebound from the lows. The close at 16,427 is a two-month low and there is serious risk for a continued plunge. The Dow found interim support at 16,400 but any further decline would target something in the 16,000 range. The 200-day average at 16,333 is not expected to be meaningful support because the 30 stock index can be pushed around by any 2-3 stocks at any time.

The Dow is seen as "the market" and I am afraid we are looking at lower lows in the days ahead.

The Nasdaq Composite managed to hold at 4350 again despite a couple intraday dips to the mid 4330s. The Nasdaq lost -31 points but it was not dramatic. It was a general weakness rather than panic in a specific group of stocks. If the 4350 level does break the net support is in the 4250 range with the 100-day at 4258.

If the Nasdaq does break below 4350-4344 it could be a dramatic drop since that support level is so clearly defined.

The strongest index was the Russell 2000. Who knew the small caps would be nearly immune to a potential invasion in Ukraine. The index was positive early in the day and only lost -3 points at the close. The 1120 level has become a price magnet despite stronger support at 1096. I am happy to see the strength in the small caps because that means fund managers are not hiding under their desks. They are actually holding their positions and apparently putting some of that new month end retirement cash to work.

Remember the Russell 3000 I pointed out over the last two weeks? The $RUA actually held on the 100-day average for the last three days. While I have little hope this support will hold it does mean the broader market is not as weak as the Dow would indicate.

I am worried the events overseas along with our normal post earnings depression in August is going to weigh on our markets for the next several weeks. I would be hesitant to add new long positions until a tradable bottom appears. Putin is a wildcard and as evidenced by the comments from Moscow today he is not going to take the sanctions against Russia quietly. We can expect additional events from Russia just so Putin can prove he is not afraid of the West.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

Click the advertisement below for a free trial to the Ultimate Investor newsletter.