Just a Flesh Wound
Submitted by Atlas Indicators Investment Advisors on December 30th, 2018
In Monty Python and the Holy Grail, Arthur, King of the Britons, is searching for the Grail when he comes across the Black Knight. After watching this skilled fighter triumph over another man in armor, the king asks the victor to join him but is refused. Along with the refusal, the knight forbids the king from crossing a bridge. Even after explaining to the knight that he has no quarrel with him, the king is left with no choice but to fight for the ability to traverse the overpass. After a fairly quick scuffle, the king continues on his journey, leaving the knight nearly dead. America’s equity markets have lived a life not unlike the Black Knight for the past 9.5 years.
Instead of knights and kings, bulls and bears participate in this skirmish. When an upward trajectory has taken hold, a bull-market is in place. However, when the direction turns sufficiently lower, the bears are in control. It is generally accepted that a bull-market lasts until the market loses 20 percent or more from an all-time high. And just a few days ago, that level was nearly breached. On Monday, the S&P 500 (a market index which is mathematically constructed and cannot be invested in directly) dropped by the most ever on Christmas Eve, putting it just a fraction of a percentage point away from a bear market based on its all-time closing high hit September 20, 2018. Yet the next trading day it shook it off and raged back, like a brave knight with just flesh wound.
Markets are moving violently lately, and it is anybody's guess when this turbulence will subside. After one of the least volatile periods on record in 2017, this year has felt particularly tumultuous. Market participants are digesting lots of information and perhaps feeling more uncertainty than a year ago. There is no way of knowing when the bridge between bear market and bull market territory will be crossed, only that we could currently be close to transitioning. Atlas will continue monitoring indicators and adjusting our managed portfolios as data changes.
