The Two Elephants In The Room

posted Jul 21, 2014, 11:26 AM by Katie Shook

Monday July 21, 2014

When it’s dark and quiet imaginations tend to run a bit wild.  That’s what worries me this week.  There’s not a ton of economic data this week.  Basically CPI, housing figures, jobs and durable goods.  That leaves the focus on geopolitical events.  And lately, that’s been a real wild card.

The two elephants in the room are the Gaza ‘stuff’ and the Russia/Ukraine ‘stuff.’  And really, it’s the Russia/Ukraine stuff the market cares about.  The economic impact of the Gaza conflict is relatively limited.  But Russia could impact Europe, which could have global ramifications.

It continues to look like Russia’s not going to play ball.  IF this is the case, the economic ripple-effect in Europe could end up slowing the economy and putting increasing the strain on economic recovery and the banking system.  This would produce a lot longer blog posts as Central Bank intervention would likely increase.

So far, the market has treated this as a very outside probability.  On Friday the markets grabbed back almost all their Thursday losses to finish the week with gains.  There are some troubling details to watch though.  Futures are indicating a weaker open.  We also saw additional deterioration as the total number of stocks with long signals declined from just over 75% to 72.74%.  The decline, in and of itself, is not enough to be statistically significant.  However, the overall trend of decline from a high closer to 85% a month ago is an indication that the underlying stocks within this market are showing increased volatility.  Are large-cap dividend stocks masking the higher volatility of the small and mid-caps in the indexes?  It would appear so.  And IF that is the case, the market may be telling us that more significant pull-back is that much close to reality.

Keep an eye on the 1940′s level for the S&P500 support.  If we fall below the multi-week low of 1952 things could get dicey.

Daily Digits

Daily Digits for 7-21-14

Weekly Estimated Range

Weeklies 7-21-14

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