Ukrainian Uncertainty

Intraday Update

MARKET BEHAVIOR
Stocks opened under 1,850, retreating from Friday’s all-time highs.  While stocks slipped back into the 1,830-1,850 consolidation region, we remain at the upper end of the recent trading range.

MARKET SENTIMENT
Traders are on edge as the situation in Ukraine deteriorates.  It is quickly turning into a showdown between Putin and the West, leaving us wondering who will flinch first.  While realistically the economic impact in the West will be limited, it is the uncertainty that weights on the market.  Few are in a buying mood when we don’t know what will happen and trading near all-time highs means value investors are not tempted to jump in yet.

While few on Wall Street foresaw this Ukrainian crisis a few weeks ago, the one thing we did know is the market was approaching the upper end of a potential trading range.  Every day there are countless positive and negative stories, meaning market participants can easily find an excuse to trade their preexisting bias.  If they want to buy, there are plenty of reasons to buy.  If they want to sell, it doesn’t take long to find a justification.  While the news is random, the market’s reaction to it is not.

TRADING OPPORTUNITY
Expected Outcome:
It is unlikely the situation in Ukraine will be resolved over the next day or two, so expect uncertainty and weakness to persist.  Most likely this is little more than saber rattling by both sides and the economic impact will be limited.  We will see near-term weakness, but it is creating yet another buying opportunity down the road.  The market is likely entering a trading range that will stretch through midyear, so continue buying weakness and selling strength.

Alternate Outcome:
The armageddon scenario is Russia and the West fall into an armed conflict.  The consequences are devastating enough to keep traders from buying all-time highs no matter how unlikely.  But even if we avoid military intervention, the market is on edge and nervous traders are prone to mad dashes for the exit.

Trading Plan:
Buy weakness and sell strength.  As we trade near all-time highs, lookout below.  This is still a decent place to defensively lock in profits and is giving shorts an interesting entry.

Plan your trade; trade your plan