Quiet market, limited opportunities

Market Review

Friday was a relatively dull affair through the morning session as equities continued to grind higher with other risk assets as markets continue to retrace the prior week’s move lower. We then entered into a period of high uncertainty and high volatility on a potentially critical news release. We received reports that a Russia military convoy had been attacked, and destroyed, by Ukraine. Poroshenko, the president of Ukraine, declared on his website that he and Cameron has discussed the attack by telephone and that “a significant part of Russian equipment had been destroyed”. Markets reacted strongly, especially in Europe with the Dax falling almost 300 points on the news. After around 30 minutes we then discovered that this event actually took place on Thursday evening, and so in many respects was old news. Over night risk assets continued to pare losses and the S&P now trades higher than where we were before Friday’s news. Even with the current ‘buy the dip’ trend, this reversal is impressive and suggests that perhaps the level of conflict indicated on Friday was far overblown. Fixed income products reached new record highs (Bund 150.71) and although lower still trade above Friday’s pre-news levels.

Today's Fundamental View

Not withstanding any unexpected breaking geo-political news we see very limited opportunity today. We strongly advise traders to be aware of the temptation to over-trade a quiet market after a period of such high market volatility. It is common for you brain to still yearn for the adrenaline experienced during volatility and as a result an ill disciplined trader will try and force opportunity today that does not really exist. Having said that, should there be a significant geo-political development then of course that is a real opportunity so it is not recommended to simply leave your desk either. In the absence of any news we are looking for prudent entries to go long equities, short the USD and short oil. Our profit targets and stops reflect the quiet expectations we have for today. There is no significant news on the macro front and we expect most traders to stay patient until the calendar starts to fill up towards the end of the week.

Alternative View

Of course any major negative geo-political developments will render the following strategies, which are positioned for a return of risk, invalid. We advise traders keep a very close ear to any breaking news and be cognitive of the fact that there is also a likelihood of the major proportion of which to be ‘hot air’.