We have found that our best work happens in silence. A quiet time daily helps us focus on the task at hand and gives us the opportunity to improve our thinking. Meditation helps as well.
It is so easy to be distracted by the ever increasing amount of news flow and opinion. During trading hours we have found that hitting the mute button is just as important as tuning out superfluous conversations and chatter from our friends and colleagues.
We should always be aware of high impact, market driving news, but we should not be so fixated that it distracts from our true purpose: making money.
So trying to think through the impact of what is going on in Ukraine and possible market driving events related to it, we shut off the TV. We contemplate; we try to think strategically in relation to our market operations.
Some things we do know. Europe through its policy objectives has placed itself in a position of having to import much of its energy from one country, Russia. Knowing that, we ask ourselves several questions. Would Western Europe cut off those flows in order to take a stand on Ukraine? Alternatively, what are the chances Russia would cut off Europe? (Finding substitute supplies in the short-term would be a daunting task.) If the Ukraine occupation were to end and Russian forces were withdrawn, how much of an international pariah would Russia remain? How long would the current intensified sanctions regime continue after withdrawal? What war premium in the oil market would come out of the current price should that happen? Would the energy sector continue to outperform? If not which energy shares are most vulnerable if the geopolitical situation should revert back to the status quo ante. Having seen what Russia has done in Ukraine and the Western response, what is the likelihood of China invading Taiwan? We are sure China has been taking notes.
So we think and ponder, and from the questions we formulate we develop answers as best we can.
The Drudge Report had several headlines Tuesday that suggests a peak in oil, at least for a mean reversion trade. (See magazine cover indicator in Wikipedia. “By the time an idea has had time to make its way to the business press, particularly a trading idea, then the idea has likely run its course.”)
Readers of this weekly note know that we’ve seen parallels between this year’s events and those of 1962. President Kennedy had taken on a natural resource industry (Big Steel) and had a major standoff with the Soviet Union over a third country, Cuba. Today we have an administration that has taken aim at the natural resource industries, coal, oil and natural gas, the carbon economy. In addition the US and Russia have once again had a diplomatic and economic standoff over a third country, Ukraine. Embargoes and blockades then and sanctions today.
Now for our master cycle which we focus on more and more these days. In last week’s note we were anticipating a low around the 8th of March, Tuesday then a subsequent high around the 15th. As of this writing that still appears to be the case. To reiterate, we see the major indexes closing flat to down for the month of March. But for the bigger picture, the high we anticipate for the 15th should be a selling opportunity, as we see the master cycle calling for a significant sell-off until the end of June. Given that sentiment and volatility measures are so deeply in oversold territory, the next rally in this bear market should be very tradeable from the long side. Trade well and stay safe.
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