Summer 2014 Part 1

The S&P 500 has been performing marvelously for the past year or so. Well above what should be expected; not only the US economy, but the world economy as well have been struggling to grow after the global recession that followed the crash of 2008. Anyone with a 401K, or an IRA exposed to US equities would be seeing well-welcomed higher balances from last summer to now. If your equities allocation has, up until now, been anything but conservative, you would have enjoyed the run-up that much more.

Well it’s the summer of 2014, and the S&P 500 looks like it could be losing some steam, at least that’s the picture my charts seem to be developing.  I am, however, having a hard time framing a logic around the scope of the retracement that I think the markets could be in store for. Granted this is a retracement that could draw out over a 2 – 2 ½ year period, it should only be a down-leg in an otherwise upward long-term trend for US equities.

In more technical terms, the index should be testing a 15+ year resistance level which it broke above (wait for it…) last summer for support to continue higher. In order to accomplish this feat of self-fulfilling prophecy, the S&P 500 must first give up all of the gains that it made over the past year. Something to the extent of a 20% drop from its most recent all-time high.

For the active investors and traders of the world, its “hay makin’” time; volatility will be high and opportunities will be abound. For the 401K and IRA investors who are relegated to broad categories of exposure, I think it’s time to find a conservative portfolio allocation that fits your investment style and wait this one out.