On Friday, the U.S. stock market closed flat to slightly lower. Institutions kept the lid on the news that was breaking a world away to make sure the stock options they had sold to investors expired worthless, maximizing profits. Options expiration is a multi-million dollar payoff to institutions, thus important to control.
An attempted military coup in Turkey. The Middle East, a hot bed for terror already, had just blown up again with more violence. Turkey is a NATO member and this is a big deal since the country borders Syria and ISIS held territory.
The markets sold off sharply after-hours Friday. However, that does not tell us anything about what Monday may hold. Why? Simply put, the markets sold off after-hours on fear and panic of the unknown. Who is in control in Turkey? What was going to happen next? The markets always sell on fear of the unknown. Sell first, ask questions later is the common theme.
If things straighten themselves out by Monday morning, the markets may shrug this off like no big deal. There is likely to be some minor selling on one more potential world issue, but if the Turkish government holds on to power and puts this coup down, markets will have a muted response.
On the other hand, if there is chaos and fighting in Turkey Sunday night, there is likely to be one heck of a negative reaction. Turkey has been a stable country in a part of the world that has been filled with insanity. Turkey has also been an ally to the west. Instability there could be very detrimental to the whole entire region. The markets are priced to perfection and a Brexit type reaction is likely if things are not stable by Sunday night.
To profit from this event you likely had to be short going into Friday's close like I was and those that follow me. Why was I short? The logic is simple. The markets are at all time highs, P/E ratios are at the very high end of historic levels. Smart money has sold longs and shorted the market because any shock to the market means solid downside and good news means minimal upside.