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Todd Harrison: The Market Exhales, Rises Higher -- Will It Last?

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Managing risk in the face of geopolitical headwinds.

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Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO.

Last week was all about the technical levels around the world; this week is setting up as the response.

On Thursday, March 13, we highlighted the levels of lore for the S&P (INDEXSP:.INX) (1850), the Nasdaq-100 (INDEXNASDAQ:NDX) (3640), the IBB (NASDAQ:IBB) (260), Dow Transports (INDEXDJX:DJT) (3600), the Banking Index (INDEXSP:BKX) (71.50), Japan (Nikkei (INDENNIKKEI:NI225) 14K), and China (Shanghai Composite (SHA:000001) 1985).

On Friday, we added Germany (DAX (INDEXDB:DAX) 9000) and spoke of tail risk into the weekend, the binary scenario that we would walk into today.

Fil Zucchi flagged the inverted VIX (INDEXCBOE:VIX) volatility curve on the Minyanville Buzz & Banter (subscription required), noting the following late Friday:

In one of the most acute displays of fear I've seen in a while, the three-month curve of the VIX has dropped a full point today and is now inverted. Inverted VIX curves tend to show up during sharp stock declines, not on days like today. Of course the immediate fears are centered on the Russia / Crimea referendum. What I will offer is that this volatility setup will probably translate into an upside freak show if anything positive (or just not negative) comes out over the weekend.

While the weekend news was troubling, at least through a Western lens, it wasn't a disaster, either -- and just as good (not great) news gets sold in an overbought market, bad (not terrible) news gets bought in an oversold market, which is one of the reasons that this week began with a better tone.

And keep in mind that we're viewing all of this through a Western lens; Putin's approval rating -- or, his reported approval rating among Russians -- is at a three-year high (72%), according to Bloomberg. Da, where you stand is a function of where you sit.

This morning, a number of headlines crossed the tape regarding the events of the weekend. Among them:

  • US officials believe some Crimean ballots were pre-marked.
  • US government imposes sanctions on seven Russian government officials; EU sanctions eight people and will consider deeper sanctions against Russia if the situation escalates.
  • US preparing for Russian advance into Ukraine; Obama executive order states that Russia's actions in Ukraine threaten peace.
  • NATO allies do not recognize the results of Crimean referendum and urge Russia to end all military actions, de-escalate the situation in Ukraine, and not take any steps to annex Crimea.
While the weekend sidestepped the worst-case scenario, the situation remains dynamic. I don't profess to know how this will manifest (I, along with everyone else, have my own suspicions), but for purposes of risk management, the market will show us the way.

For active trading strategies, we've mapped levels that will provide near-term guidance; for longer-term investing opportunities, we should identify stocks we like and levels we like them, allowing for a margin for error and, when possible, risk definition.

One step at a time as we together find our way.

Random Thoughts:

  • Five years ago today we lost a special soul and a true friend. I would like to take a moment to pause and reflect on what a good man Bennet Sedacca was. Rest in peace, Blue Steel.
  • If you want to piss off rich people, you turn them into poor people, or so said Billy Ray Valentine. Bloomberg touched on a similar situation that's brewing for Russia's richest citizens.
  • Minyan March Madness is upon us! Fill out your bracket by 11 a.m. Thursday to toss your hat in that ring!
  • Personally, I would love to see Malaysia Air Flight 370 land in Crimea; Twitter (NYSE:TWTR) might blow up if that happened.
  • The "other side" of high-frequency trading isn't selling, it's turning off.
  • There will be an entire generation that will grow up thinking that Twitter followers define standing in a given field.
  • There is a lot of emotion swirling around the marketsm but thus far, with two weeks left in the first quarter, the Dow Jones Industrial Average (INDEXDJX:.DJI) is down 2%, the S&P is essentially flat, and the NDX is up 2%.
R.P.

Twitter: @todd_harrison

Follow Todd and over 30 professional traders as they share their ideas in real-time with a FREE 14 day trial to Buzz & Banter.
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