Todd Harrison: Tail Risk Into the Weekend
The market is binary -- see both sides.
The standoff continues -- and I'm not talking about the US and Russia.
The bulls have stood below S&P (INDEXSP:.INX) 1850 and NDX (INDEXNASDAQ:NDX) 3640 and done everything they could to hold the line into the weekend.
The bears defended their turf, as one would suspect they might with the Crimean referendum looming on Sunday.
The geopolitical net/net as I understand it comes down to this: Russia intends to "wait until the referendum before making any decision" regarding the annexation of Crimea, presumably knowing full well it's got what it needs for the outcome it wants.
The US believes the referendum is illegal and won't recognize the results. Earlier today, John Kerry threatened "very serious consequences" by Monday if Russia doesn't change course.
Meanwhile, the UN could vote on the issue this weekend.
We outlined the levels yesterday and added flavor to the mix this morning in an attempt to help frame the financial market field position. The events of this weekend will shape the reaction to those levels, and the potential outcome couldn't be more binary.
I would love to be able to say, "BUY 'EM RIGHT HERE!" or "GET OUT WHILE YOU CAN!" -- but there are no such certainties.
If the situation deteriorates over the weekend, the market will gap lower on Monday, and the support levels we've discussed will be dust in the wind. If calmer heads prevail, we'll gap higher and the bulls will again be rewarded in spades for buying the dip.
What I can offer is that volatility, while some 60% higher than the January lows on the aggregate, is still on the lower end of the historical range. Insofar that stock replacements or married puts fit your risk profile, that might be a way to mitigate some exposure into the weekend.
As always, I hope this finds you well.
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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