Everybody Out Of The Pool

posted Jul 18, 2014, 2:59 PM by Katie Shook

Friday July 18, 2014

If you've ever been to an outdoor pool in the summer, you've probably been pulled out at some point due to a thunderstorm.  The rule – for as long as I remember – was pretty simple:  if you hear thunder, everyone is required to get out for the next 30 minutes.  It’s a precaution.

This was yesterday.  It started with Russian sanctions, but was punctuated with the downing of a Malaysian Air 17 and a ground offense by Israel entering Gaza.

Regardless of your politics, there’s no denying this was a significant geopolitical risk-on day.  The markets weren’t going to take the time to sort things out.  It was risk off and everybody flocked to safety.  The VIX spiked, all the indexes fell, and the news media had a field day.  For the first in like 59 days, the market had a negative move of more than one percent.

I suspect over the next few days the markets will begin to figure out the real implications of all of these issues.  I also suspect the markets will treat this event like mild chronic pain.  Once the dust starts to settle, we’ll adjust to the burden, then grind higher will continue.  The big question is, where is support?  Look for the 1940′s to be a significant area for the S&P500.  A close below 1944 would likely indicate more downside.

Assuming yesterday was the big geopolitical surprise, the markets (S&P500) will likely consolidate around the 1950 level again.  Of course, we’re talking about surprises here.  Those aren't exactly easy to quantify.  IF — and that’s a big if — Thursday was the worst of the surprises we’re to see on the geopolitical front, then the markets will probably re-group.  The economic data seems to be more stable and expectations more contained.  If not, then we could quickly re-test the 1900 level…  or lower.

I heard it said yesterday the world hasn't been this dangerous in a long time.  From the perspective of human character, I disagree:  we've always been dangerous.  But from the perspective of the number of active conflicts around the world, this may be true.  The markets have enjoyed a very low degree of volatility for a quite some time.  I think yesterday’s events effectively inserted uncertainty – and likely volatility – back into the equation.

As  a side note:  may the innocent victims of these conflicts rest in peace; and may the conflicts resulting in these events be resolved swiftly and peacefully.

 

Daily Digits

Daily Digits 7-18-14

 

Weekly Estimated Range

Weeklies 7-18-14

IMPORTANT DISCLOSURE INFORMATION Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Littlejohn Financial Services), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Littlejohn Financial Services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional adviser of his/her choosing. Littlejohn Financial Services is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Littlejohn Financial Services' current written disclosure statement discussing our advisory services and fees is available for review upon request.
Comments