Stocks are lower by a percent on fears of US involvement in Syria. This dip undercut the lows of last week as many traders take a sell first, ask questions later approach to the news. While the move is lower, we are still well within the summer’s trading range and this sideways chop is consistent with recent behavior, so at least for the time being, the market is not signaling the start of something new.
Paradoxically wars are good for markets, it is the uncertainty leading up to the initial confrontation that weighs heavy on them. The start of armed conflict is a relief to markets and leads to powerful rallies as seen in WWII and the first Gulf War. The Syria “conflict” will likely be nothing more than a few cruise missile, or at worst air support for rebels like we saw in Libya. While we might experience a 25 or 50 cent spike in the price of gas, we lived through $4/gal gas before and will do it again.
Through uncertainty comes opportunity. Everyone is fairly confident this Syria thing won’t be a big deal, but we don’t know for sure and that keeps buyers away. Traders selling this weakness are offering attractive discounts to those willing to take the risk. For one side it will be a good deal at the expense of the other, but only time will tell if this is the end of Syria based selling, or just the start. The gap lower at the open and the progressive slide lower is heightening the pain for those trying to hang on and is the cleansing process of setting the market up for the eventual rebound. No one can consistently pick bottoms and tops and I won’t try, but all these previous Middle East selloffs created buying opportunities and this one will likely end the same way.
Markets often act irrationally and emotionally. As frustrating as that feels in the moment, those cracks in efficient markets allow us to profit from other people’s impulsive behavior. I have no idea how low this dip can go and picking bottoms is a fool’s game, but this weakness is creating opportunity. As for Syria, we’ve seen this story many times before and the worst fears are never realized, but we need to wait for the market to sort this out before jumping in front of it.
We long knew Tapering was a non-issue and it was going to be something else that brought this rally down. Syria is new and few are actively promoted the impending Debt Ceiling. Together these two headlines could conspire to kill this rally since they are not currently priced in.
Stay cautious, but be ready to buy with both arms when the missiles start flying. Syria is a non-issue, we just need to wait and see how much of a discount sellers are willing to give us first. Shorts can keep riding this down, but take profits early and often in this sideways, summer chop.
Plan your trade, trade your plan
Jani Ziedins (pronounced Ya-nee) is a full-time investor and writer who has successfully traded stocks and options for more than a decade. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes manufacturing engineering at Fortune 500 companies, structural engineering, small business consultant, collegiate instructor, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two young children.