Interpretation of the market situation

Every weekend I gladly publish in this stream a chart analysis which pertains to a US stock listed in the S&P500 Index. I try to find candidates that I consider particularly interesting for new long positions, based on my technical and graphical chart analysis. Today, before I move on to the usual chart analysis, I would like to describe to you my personal, layman’s interpretation of the current economic situation as it unfolds on the background of further increasing political tensions. My view on the market situation will certainly impact my trading decisions to a certain extent, and I therefore deem it appropriate to share my thoughts with those of you who follow my updates.

Last week, the Russian Federation has imposed retaliatory sanctions, for the duration of one year, concerning food imports from the European Union, the United States, and a few other countries. In my opinion, these sanctions have the potential to create considerable havoc to Europe’s economy. It wouldn’t surprise me to see massive protests of outraged fishermen and farmers; a part of the population that is traditionally not easy to appease when it experiences hardship. These protests could occur rather quickly and almost anywhere from Greece to Norway. Such unrest may result in the need to hastily prepare various “bailout packages”, thereby bringing back some almost forgotten, unpleasant memories from a few years ago. Large financial interventions to subsidize an important part of Europe’s economy could, in turn, exacerbate the smoldering sovereign debt crisis of many European countries and thereby inflict significant economic tensions with detrimental consequences reaching far beyond the agricultural sector.

In contrast to this, as far as the US is concerned, I think that the immediate impact of Russia’s sanction on the economy will be negligible. Russia’s sanctions might even temporarily strengthen the financial markets in the United States and thereby, at least indirectly, have a positive impact on the US economy. The reasoning behind this is simple. If foreign investors begin to fear the possibility of a significant recession in Europe, they could soon relocate their financial assets from Europe to the United States, which might be seen as a safe haven in these times.

As I said at the beginning, this is just my layman’s opinion. I am neither an economist nor a politician, and I kindly ask you to take these interpretations with a grain of salt. Hopefully my worries are unfounded in the sense that the repercussions of Russia’s sanctions on Europe’s economy will be less severe than the scenario that I have outlined. But then again, this is so far only the first response of the Russian Federation to numerous sanctions that have recently been imposed onto her. In view of the principle of reciprocity, several members of the Russian Parliament might be inclined to exert pressure on the President to rev up the sanctions against the West onto more significant level; a stance that has been suggested recently by Sergey Glazyev, an influential Russian politician and economist. It is thus possible that we have now merely witnessed the first step of a massive economic warfare.

With or without the "safe haven" status that the US financial markets may or may not obtain in the near future, it currently seems unnecessary to reduce our exposure to the US stock market. For the time being, we could even consider opening new long positions. In view of the insecure and volatile situation, it nevertheless seems advisable to be prepared to sell quickly in the case of significant changes.

Thank you for reading my comment. I wish you a nice weekend a great trading week.