The FTSE 100 declined sharply last week on heightened geopolitical tensions. Today markets are firmer in pre-open as the situation in Ukraine improves slightly. Russia said it had finished military excercises in southern Russia.
But question marks remain in the wake of the Russian sanctions against western countries. Europe, which is a major exporter to Russia is feeling the pain. The situation in Europe was already grim before the sanctions, now the chances of deflation taking roots in Europe are real.
Expect more profit warnings coming from European firms in the next few months. If the tensions in Ukraine are easing, In Iraq the situation is getting worse with the US military now involved in bombing insurgent's positions in northern Iraq.
Yet these conflicts are not long lasting market moving events, they can move the market as we saw last week but in a bull market investors will use these corrections to get back into the market. Unless the situation in Ukraine or Iraq deteriorates stock markets are likely to rally to new highs in the next few weeks.
After the decent pullback and a Top 20 Differential near oversold, the odds of a rally in the short term have increased significantly. In fact, the rally is probably underway so from today we are looking to buy the dips. 