Much to everyone’s surprise, including mine, the Brexit campaign won the UK referendum by a healthy margin and it seems the UK is starting down the road to leaving the European Union. There were big reactions overnight on the markets, and much gloom voiced and written about the danger and the instability of the Brexit, but personally I think it’s a good thing, and if you believe that it’s always better to stick with the devil you know, then I’d suggest perusing the writings of the US founding fathers for a series of opposing opinions. Change sometimes works out ok, and it’s worth remembering that the only situation for humans that is ever really stable, is death, which is a high price to pay for certainty. Any good outcome always involves taking a risk.
The markets have been moving significantly on every new Brexit poll and moved up hard overnight on polls showing that the Remain camp now have a clear lead. My working assumption all along, as I’ve mentioned regularly, is that Britain will vote to stay out of fear of change. The status quo generally has the edge on these kinds of referendums for that reason.
This gap up may mean that closing resistance at the daily middle bands on SPX and RUT may break today, if bulls can sustain the move into the close. We’ll see whether they can but regardless of that, when there is a likely Remain victory overnight tonight there may well be another big gap up that could well have more staying power.
I’ve been watching the coverage of this month’s potentially market moving crisis du jour which is the Brexit campaign. How long will this remain ‘important’ even if the Brexit camp wins? That’s hard to say. Anyone remember Ukraine? The campaign has been funny in places though, I thought the concern that Britain’s growth prospects might be damaged long term by leaving the slowest growing region in the world was particularly witty, though that may not have been intentionally the case.
How does that impact trading this week? Well I think the Remain camp will most likely win the vote. The status quo always has a big advantage in this kind of poll and fear of the unknown is a potent message, even if uninspiring and suggestive that there is no positive message to sell instead. As you can see from the video below (thanks to @busculture on twitter for sending me this), the Remain message hasn’t really changed since the last Brexit referendum in 1975. They won then, and they’ll likely win now. That should favor the bulls at least initially. Crisis du Jour:
My apologies for the late post, I had a busy morning and I’m not really in the mood today. So far it seems that SPX is feeling the same way, though it is likely compressing for a move to break up or down either today or overnight.
Bulls didn’t follow through on the very impressive opening gap up yesterday morning and lost potential support at the daily middle band, now at 2092, before the close, so there has been no daily closing break back above very important resistance at the daily middle band. With the current HOD at 2091, that resistance hasn’t even been significantly threatened so far today.
As I mentioned this morning, “All the same, these rallies based on things that DIDN’T happen have been, in my experience, not big trend-changers”. Suffice it to say, I’m glad I didn’t panic, cover everything in sight, and buy a damned thing. This was a complete wimp-out on the part of our bullish friends.
My last tweet of the week on the theartofchart.net member twitter feed on Friday was a comment that the close was modestly bearish, but with a risk of a breakaway gap up at the RTH open today, and here it is.
Today is all about a test of strong resistance at the retest of broken rising channel support and the daily middle band at 2089. This is a daily closing basis test, so we could see a break above intraday, but any intraday move over 2095-2100 SPX would suggest a likely break up.
If SPX fails here then fills the opening gap then we should see a retracement low under 2050. If SPX breaks resistance then the current swing high at 2120 should be retested, and may well break into a test of the all time high at 2134. SPX daily chart:
Early in the weekend, I was asking myself how I was going to handle positioning before the big Brexit vote on Thursday. Well……..umm…….problem solved! It’s quite evident that the assassination of Jo Cox took care of the problem the ruling class in Britain was having with this whole “Brexit” nonsense, and, as with all things, we’ve glorious returned to the status quo.
As such, the ES has undone five days of losses with a monster lift-off: