…be aware that the big money is poised to sell on every significant rally.

Georgia On My Mind

Meanwhile, over in the Caucasus, we have the incredible spectacle of the United States sending troops to help our allies in Georgia beat down a military threat from Russia.

It kind of seems like these headlines got lost in cyberspace from 20 years ago and randomly floated down into the news wires. But it's true. We're looking at Cold War v2 heating up.

My friend Tom McClellan, an ace technical analyst and former U.S. Army helicopter pilot, has been wondering why the stock market isn't collapsing and commodities raging with international tensions heightened. So he did some digging in history, and provides the following observations:

• The former Soviet Union invaded Czechoslovakia on Aug. 21, 1968, when the DJIA stood at 888.67. That was four days after the start of Phase III of the Tet Offensive in Vietnam. It was also just ahead of the August 26-29 Democratic National Convention in Chicago, and its associated riots, and 2 months before the start of the 1968 Olympic Games in Mexico City. In short, it was a time when the U.S. was pretty fully distracted, so it was a great time to start an invasion. A month later, the DJIA was at 930.45, up 4.7%.



• The former Soviet Union invaded Hungary on Sunday, Nov. 4. 1956, as Americans were caught up in the reelection campaign of President Eisenhower, so it was a great time to start an invasion. The DJIA stood at 490.47 at the close on Nov. 2. The DJIA stumbled a little bit, but managed to regain that same level a month later.



• The former Soviet Union invaded Afghanistan on Dec. 24, 1979, Christmas Eve, after Soviet army advisors had instructed the Afghan army troops to remove the batteries from their tanks for maintenance, thereby facilitating an easier invasion. The DJIA stood at 839.16 at the close on Dec. 24. Afghan president Hafizullah Amin was killed on Dec. 27, and the takeover of Kabul was completed quickly by Soviet airborne troops. This was also during the time when Iranian "students" had taken over the U.S. embassy in Tehran on Nov. 4, 1979, and were holding the embassy staff hostage. That made for a great time to start an invasion. A month later, on Jan. 24, 1980 the DJIA stood at 879.95, 5% higher than the preinvasion close.



• The current situation in the former Soviet republic of Georgia is quite reminiscent of those previous Soviet invasions, commencing just as the 2008 Beijing Olympics were getting under way and the world's attention was distracted. The U.S. military is also pretty decisively engaged in both Iraq and Afghanistan, and thus not in a great position to make a military response. The invasion of Georgia is more than a little bit upsetting to the collective psyche of the investing public.

The point in raising these historical examples, Tom notes, is to show that past invasions by a Soviet army did not really hurt the stock market, and so we should not automatically assume that the current attempts by Putin and Medvedev to revive old familiar Soviet practices will do so this time.

Next week I will help you understand why Georgia is so important to Russia, and what's at stake for investors in the conflict. In my Trader's Advantage letter, we've been handling this volatility with both long and short positions in commodities, financials and techs that have panned out with big profits, so this is a good time to check us out. Click here to learn more about a risk-free trial.