We hope for the best, but prepare for the worst when it comes to geopolitical events. To give us an edge in our trading we study history, be that contemporaneous news reports of past events, history books, and of course charts. We are students of human psychology and its effect on markets.
On this past Monday (the President’s Day holiday in the U.S. no less) Russian President Vladimir Putin ordered his military to occupy two separatist provinces in neighboring Ukraine. The overnight futures gapped down hard and found low of 4250.00, off 94 handles from the previous Friday close of 4344.25 on the S&P 500, before recovering and going positive early in the regular day session on Tuesday.
This reminds us of a story that Arthur Cashin told us about being on the floor of the NYSE, early in his career, during the Cuban Missile Crisis in 1962. Our apologies if we do not give it the detail that he would, as this is from memory from his many “seminars” we attended through the years at Bobby Van’s across the street from the Exchange.
As we have referenced in the past, the analogue of that chain of events in 1962 is echoed in what we are seeing today. Moscow and Washington DC were at loggerheads over a 3rd country. In 1962 it was Cuba and today, 60 years later, it is Ukraine.
Back to what Arthur told us about being in the order room of the firm he was working for in 1962. It was during one session in the crisis that rumors began to swirl around the floor that missiles had been launched from Russia. A flood of sell orders came in fast and furious and the market was knocked back on its heels from the resulting panic. After the day’s session concluded, Arthur made his way to visit with a gentleman that educated him on the ways of Wall Street, a true old hand with years of market wisdom to impart. (The cost of that education was the purchase of a couple drinks for his teacher, but well worth the price!)
Arthur proceeded to tell his friend and mentor what had transpired during the day’s trading, and how reports of missiles being launched had caused the market mayhem. The gentleman went on to say that in such an end of the world event, one should not be a seller but rather a buyer. He added if you’re right and it is not the end of the world, one will profit handsomely. And if you are wrong and it truly is the end of the world, you won’t have to settle the trade anyway.
A funny anecdote it might be, but it goes to the psychology of panics and how Wall Street professionals navigate them to their benefit.
So the Ukraine incursion is not the end of the threat that overhangs the market, but the beginning. There will be more market moving events to come. Keep your eyes on the news feeds. Be considered in your trading. Keep wary and stay safe.
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