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.


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Daily Digits 7-18-14


Weekly Estimated Range

Weeklies 7-18-14

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