THURSDAY 7/17/14; Russia Sanctions Bite; MS; PPG; PM; Housing Starts; Philly Fed; Malaysian Passenger Airplane Shot-Down Over Ukraine; israel Begins Gaza Ground Invasion; Markes Sell Off on Geopolitical Turmoil; AMD; COF; GOOGL

Asia begins on a happy note but the party runs out of gas. NIKK gains +0.4% in early trading but ends flat. The dollar/yen drops to 101.48 so the stronger yen takes the wind out of Japanese stocks and US futures. S&P -3. Takata, the air bag manufacturer for BMW and other car makers, drops -4%, due to ongoing recalls. The SSEC drops -0.6%. KOSPI gains +0.4% as electronics manufacturers and retailers move higher. Casino stocks trade lower in Hong Kong.

The Aussie SPASX200 moves higher and continues to test the ceiling of resistance at 5520-5550 for the last three months; the index will either bounce or die. Price attacks 5560 but is rejected from this six-year high finishing at 5522. The Jakarta Composite drops -1% waiting on the presidential election results due in the coming days.

Russia’s Micex Index drops -2.4% on the sanction news. Rosneft collapses -6% but stabilizes. The Russian Ruble is 34.8391 moving higher which represents a weaker Russian currency and the ruble is at one-month lows against the US Dollar. Money is flowing out of Russia so the sanction news is biting sending Russian stocks lower and weakening the currency. PM Dmitry Medvedev, Putin’s puppet, says the sanction measures are “evil.” Medvedev says the US is hurting relations and will reignite the cold war. President Putin says that US-Russia relations are heading to a dead end and warns of retaliation. Putin says Russia will not respond to blackmail.

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Fed’s Bullard says rates may have to be raised sooner than anticipated if inflation continues higher. Bullard is a hawk so the comments are not surprising but stocks do weaken further on the sound bite. Russia fund ERUS collapses -7%. There is heavy volume exiting Russian stocks. OGZPY (Gazprom) drops -5%. Russian media company CTCM drops -6%. Russian telecom MBT drops -4%. Wheat, very critical to the Ukraine region, jumps higher in price. Corn, oil, gold and silver all trade higher. Gold leaps 17 to 1317.

Volatility spikes wildly higher, over +30%!, with the VIX printing above 15, verifying a tinge of fear in the markets as traders buy protection. Buying volatility on the long side through options or ETF’s provides a hedge for long stock positions since volatility moves opposite equities. Equities deteriorate as the VIX sky rockets higher.

At 3:40 PM EST, Israel begins a ground offensive into Gaza. Israeli troops are targeting tunnels created by Hamas for moving weapons and supplies and entering Israel illegally. Television screens are showing images of war and crashed airplane debris creating a negative mood. Minutes before the closing bell, a rumor circulates that the Whitehouse is in lockdown. The rumor is untrue.

Equities finish the session at the lows. The SPX tanks 23 points, -1.2%, to 1958, losing the 20-day MA support at 1967. The INDU loses 161 points, -0.9%, to 16977, under the 17K level, but above its 20-day MA support at 16951. The COMPQ collapses 63 points, -1.45, to 4363. The RUT small caps are beaten 18 points, -1.6%, to 1134, under the 20, 50 and 200-day moving averages leading the parade lower. The VIX catapults +32% higher to 14.54 as traders run to buy protection.

IBB collapses -2.2% so Fed Chair Yellen singling out biotech stocks as overvalued creates greater selling. CELG, REGN, ALXN, GILD and VRTX are bludgeoned from -2% to -4%. Ditto the social Internet stocks with SOCL dumping -1.8%. Traders simply trade according to what the Fed says and does. The central bankers are the market. Equities actually hold up relatively well today considering the geopolitical turmoil. Traders continue to firmly believe that the Fed will support the stock market forever so there is no real need to sell.

Energy stocks also lead lower with XLE -1.6%. TRAN collapses -1.4%. Financials and retail stocks are weak. XLF -1.3%. XRT -1.3%. Industrials lag. XLI -1.6%. MSFT finishes up +1%. BA, the maker of the doomed Flight MH17 airplane, loses -1.2%. Gold jumps 19 bucks, +1.4%, to 1319, stalling exactly at the 20-day MA at 1320. Silver gains +1.8% to 21.19. WTIC oil leaps higher to 103.75. Brent moves above 108.

After the bell, IBM beats by a penny on EPS at 4.32 and beats on the top line with $24.36 billion versus $24.13 billion expected. IBM reports nine straight quarters of revenue declines. IBM pops +2.3% in AH trading but several minutes later collapses turning negative down -1.3%. Traders are concerned over the lower sales numbers. Google reports an EPS of 6.08 versus 6.24 a big miss. Top line sales beat at $15.96 billion versus $15.62 billion expected. GOOGL trades up +1%.

AMD plummets -16% after missing on EPS by a penny and guiding lower. The stellar chip sector is starting to receive bumps and bruises. HPQ drops -1.1% after current CEO Meg Whitman is also named Chairman of the Board and several other executive positions shift as well. JPM announces a retroactive pay raise for CEO Jamie Dimon. The greedy bankers always receive their money in the end no matter how much they pretend to be heroes by working for lower wages.

Oilfield service company SLB, nicknamed ‘Slob’, reports a 24% profit drop and trades lower. STX trades lower after reporting in-line earnings. SWKS beats on earnings and guides higher so it is rewarded +6.5%. Susan Wagner, a BLK founder, joins the APPL board.

At 4:20 PM, confirmation is received that a surface to air missile brought down the Malaysian flight this morning above East Ukraine. The focus turns to who fired the missile. At 7 PM EST, US futures trail lower. S&P -9. Dow -84. Nasdaq -16. As the geopolitical turmoil continues, President Obama attends two fund raisers in private homes in Manhattan partying the night away.