Real traders more worried about Gaza than plane crash

When the news broke that Malaysia Airlines Flight 17 that was headed to Kuala Lumpur from Amsterdam was shot out of the sky over Ukraine, U.S. markets initially took a dive. But I don't think this will be the catalyst for traders and investors to continue hitting the "sell" button.

Israeli soldiers stand on their Merkava tank on july 17, 2014 at an army deployment area near Israel's border with the Gaza Strip.
Jack Guez | AFP | Getty Images
Israeli soldiers stand on their Merkava tank on july 17, 2014 at an army deployment area near Israel's border with the Gaza Strip.

The first "sell" reaction was actually created by algorithms. The speed at which the market took the hit indicates that the order flow was generated and then delivered — or really sprayed out — across the 70+ venues that exist in current market structure by high-speed algorithms designed to react to words in a headline.

Recall the "hacked Associated Press" Tweet last summer —"Breaking: Two Explosions in the White House and Barack Obama is injured" — this caused a swift 200-point selloff that quickly reversed itself when the AP announced that they were hacked and it was a false headline. The speed at which the market sold off and then re-balanced is only possible with the help of high-speed automated order generation and delivery.

So yesterday's headlines to the effect of "Malaysian Airliner Shot Out of the Sky" or "Russian Forces Down Malaysian Air Passenger Flight 17" clearly weren't positive and triggered the high-speed algorithms to have a field day.

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Technology today allows for a computer with artificial intelligence to make a determination as to the meaning of the headline and then shoot first, ask second. This is the state of affairs for the U.S. capital markets thanks to the Internet, the social media, and the need to know.

As a result, we see the markets get whipped around on just the headline alone, and then once the human being gets to read and digest the news, the move is either confirmed or not. So, did traders believe in the end that this was an act of terrorism or an act of stupidity? The jury says: stupidity.

Sure enough, the market stabilized and remained in negative territory, territory that it had been in all day anyway due to weak earnings and other geopolitical concerns.

I don't think Wall Street is overwhelmingly concerned about this one event. Traders largely believe that it is not going to lead to further escalation of military/separatists activity. So, the market and traders will put this event on the back burner — aware that it is there but not willing to let it drive the direction of the market. BUT —

Then came the news that Israel had begun the invasion of Gaza as a result of Hamas not respecting the temporary ceasefire. Once again, the computers kicked in, causing the market to immediately plunge 50 more points in their "take no prisoner" style, taking the Dow down 125 points as traders and investors assessed the new news.

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Now remember: The market was already on edge expecting a reaction from Israel — thus the day's weakness. This headline, though, created the opportunity for another wave lower. Once traders began to assess the story, more selling followed — this is much more indicative of overall nervousness and anxiety among traders.

The Gaza event has the potential to be much more of an issue for global markets than the Malaysian passenger jet because this has the ability to implode into a much larger confrontation — a confrontation that many fear. Fear creates a visceral reaction in some causing them to run for door and with the market flirting with all-time highs. it is easy to understand why so many will choose to take some money off the table and wait to see what happens.

Remember that fear also creates opportunity for those who use their heads and assess the reaction — not relying on the artificial intelligence of a computer to tell them what they should think.

If the Israeli/Gaza conflict is not resolved and spreads further throughout the region, traders will use this as the opportunity to raise cash. Remember: Investors are always looking for the next opportunity. So, if this creates that opportunity, then look for the longer-term investor to take advantage of that move as any move caused by this conflict is not a move predicated on global macro weakness affecting company performance.

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Either way, on the other side of the equation continues to be the Federal Reserve. What they do — and the speed at which they do it — will certainly override any geopolitical issue if it surprises investors. At this point though, can investors really say that they are not aware of what the Fed may do? Can large asset managers suggest that they are not prepared for an eventual move to normalcy?

Clearly today, investors and traders don't seem to be worried about anything.

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Commentary by Kenny Polcari, director of NYSE floor operations at O'Neil Securities. He is also 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.