Why the stock market’s rally following the Russian invasion makes perfect sense

Free After-Hours Analysis: 

Russia invades Ukraine and US stocks rally?!?!

This has to be some kind of gigantic mistake, right?

Luckily for readers, I published a post last week titled “Why stocks could actually rally if Russia invades Ukraine“:

The thing to keep in mind regarding events in Ukraine is markets deal with bad news a lot better than uncertainty. That’s because traders can put a price on bad news and factor it into the market. Unknow outcomes are impossible to quantify and traders tend to let their imagination get the worst of them.

This phenomenon of uncertainty being worse for stocks than bad news is what allows stocks to actually rally once bullets start flying. While no one wants to see that happen, a hot war means we stop debating what could happen and instead focus on the actual impact of the conflict. And in most instances, reality turns out less bad than feared.

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The above analysis spelled out the market’s reaction to a tee when bullets started flying Wednesday night and hopefully readers were prepared because this was a fantastic trading opportunity.

(Note: The scale of this human tragedy in Ukraine cannot be overstated and my heart pours out to all the innocent people caught in the crossfire. But this is a stock market blog and the market has a cold, cruel heart when it comes to these things.)

Not surprising, the S&P 500 reflexively gapped 2.5% lower Thursday morning after the invasion started. But that’s when opportunity presented itself and only a handful of hours later, the index closed nearly 7% above those intraday lows. Blink and you missed an outstanding trade, especially if you use 3x ETFs like I do.

Now, this isn’t to say this was an easy trade. I’ve been looking for the bounce for a couple of weeks and made some premature buys along the way. But by being disciplined and following my trading plan, I made those “mistakes” with partial positions and by getting in and out early, those “failed” trades were mostly breakeven and some even returned a few bucks of profit.

While no one is getting rich trading these mini bounces, that was never the intent. I was big game hunting and I wasn’t going to let a few miscues detur me. Especially when those miscues were so inexpensive.

While some criticized these premature buys, I didn’t give up and my trading account is a lot fatter today because of it.

I cannot predict the future and I don’t know which bounce will be the real bounce. To deal with that, I simply buy all of the bounces because that means I will never miss one. And bounces that don’t work, no big deal, I get out at my nearby stop and try again next time

Rarely is making money this easy or fast. Hopefully, you didn’t miss this trading opportunity.

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As for what comes next, there isn’t much to do except lift our stops and see where this goes. If the emotional selling resumes, no big deal, I take my profits and wait for the next big bounce. I’m happy to keep riding these waves as long as the market is willing.

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