Ukraine could trigger a market correction

The turmoil in Ukraine has the potential to be the catalyst that triggers a market correction — one that would be swift. But as each day passes, that possibility seems a bit more remote.

Look, traders love the noise, the chaos and the confusion. In fact, they need it so they can take advantage of the volatility.

Getty Images I Sean Gallup/Staff

Traders, like some investors, continue to be on edge as the potential for further violence or military action is only one gunshot away; unrest between ethnic Russians and more moderate Ukrainians simmers just under the surface. Friday brings many questions: Do I get short going into the weekend? Do I stay long? Do I go home flat and begin anew on Monday? Speculation begins to run wild as traders consider the next move and how to position themselves.

(Read more: Greenspan: This is the only way to stop Putin)

Last week, as Friday approached you could feel the increased anxiety, you could feel the nervousness — hard core bears positioned themselves; bulls weren't sure if it was just noise. The weekend proved to be newsworthy and markets. That's fresh in many traders' minds this Friday.

The tone of the market since Tuesday has been surprisingly resilient. The sour mood and nervousness has, for now, dissipated — but as a trader you can feel it simmering just under the surface. The move to new highs is both confusing and conflicted. What is the market really focusing on? What are brokers hearing from customers in terms of level of anxiety or concern? I will tell you this: For now, the sense is a bit elevated but not panic. The VIX is now back down below 14 — seemingly on its way back to 12, signaling that calm waters may lie ahead. Yet it is often at that moment, when complacency sets in, that markets react without notice. It doesn't have to necessarily be a specific event, just some event that the market uses to justify a downturn.

(Read more: Putin rebuffs Obama as Ukraine crisis escalates)

Strategists tell us that the Ukrainian economy is small — certainly smaller than Russia and roughly 70 percent of the size of Greece. But unlike Greece, commodities play an important role in their economy and thus the global economy. Commodities represent some 30 percent of Ukranian GDP, which includes food products such as corn, wheat, chemicals and timber. But natural gas is by far the most important for both Ukraine as well as Europe. Fifteen percent of the gas supply for Europe runs through Ukraine — any disruption here would clearly impact the ongoing recovery in Europe. And any disruption there will impact the recovery in other parts of the world.

Any military intervention by Russia will stir up political tensions around the world and we know that when investors begin to get nervous, it is always easier to hit the "sell" button first and ask questions later.

(Read more: Contained or contagion: How to play Ukraine)

If you continue to believe in the U.S. recovery, then any swift pullback will provide an opportunity both ways — get short on the way down , lay out your supports and then cover to go long as the market finds support.

—By Kenny Polcari

Kenny Polcari is director of NYSE floor operations at O'Neil Securities and a CNBC contributor, often appearing on "Power Lunch." Follow Kenny on Twitter @kennypolcari and visit him at

Disclosure: The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O'Neil Securities or its affiliates.