For the mid-week ending August 20, 2014, the markets stall at their new highs with limited economic news. Tensions between Ukraine and Russia are escalating as the fighting intensifies.
The markets have not moved far from all-time highs despite an incredible jump in durable goods orders. Orders for durable goods in July surged 22.6 percent, the highest gain ever recorded since 1992. A large portion of the increase is due to the sharp rise in aircraft purchases, especially Boeing which has orders for a record 324 planes. Excluding air craft and other transportation equipment, durable orders for July dropped 0.8 percent (but is up 6.6 percent over July of last year).
Part of the very narrow range this week is due to rising tensions in Ukraine. The U.S. is accusing Russia of directly supervising the new offensive which is helping the rebel forces expand their fight. There are indications that the Russians have sent tanks, armored vehicles, and rocket launchers to other communities in Ukraine.
And currently, there is news that Russian troops have been captured fighting in Ukraine. The President of Ukraine, Petro Poroshenko, has called for an emergency meeting of the European Council and the United Nations Security Council to respond to this new threat. A leader of the rebels in Ukraine has confirmed that Russian active duty military are fighting in Ukraine. The major countries in the EU and the U.S. are now considering stronger sanctions as this now constitutes and invasion by Russia.
The markets in Europe are sharply down on the news (especially emerging stocks), as is the pre-market in the U.S.. Markets in Europe are down 0.42 percent (FTSE 100) to 1.44 percent (FTSE MIB). S&P futures showed a drop as high as -8.5 points.
In Iraq, U.S. airstrikes have leveled off recently as consideration is given to expanding operations (including Syria). The Pentagon is putting plans together for battling ISIS in Syria as part of a broader approach to fighting this militant group.
For option traders, we are now suggesting Put credit spreads at 2 standard deviations. The expected price of the SPX at the close on Friday will fall within 1965-2035 (or 2 standard deviations).
For more information about options, see the 'Suggested by the author' links below.