MARKETS UPDATE (4:45 pm EDT)
The final tallying of "Brexit" votes last Thursday night which favored the U.K. leaving the European Union took many investors by surprise on Friday morning (myself included). This was because the polls on Thursday had favored the "Bremain" voters or those that wished to remain in the EU, and equities had rallied in anticipation of that result. Stock markets don't like surprises, and this one triggered a massive sell-off of over 600 points in the DOW (about 3.4%) and 76 points in the S&P 500 (3.6%). I had posted a trade alert at 6:30 pm EDT Thursday to cover our short position in the broad stock market (based on the polls favoring the "Bremain") but then canceled this and reentered my short position at 1:45 am EDT on Friday when it was announced that the Brexit voters had won. Even if traders did not get my second alert and placed an order to cover a short position, they likely profited as the DOW plummeted nearly 500 points in the first five minutes of trading.
The big question now is whether or not the panic and market plunge will continue into this week. Could this be the start of a market crash? It is possible. Many market analysts currently view the broad stock market as a bubble looking for a pin. The Brexit vote has been quite a sharp pin. There are other factors to weigh here, however, before we push the panic button. Foremost is the fact that we are approaching a presidential election in the U.S. There are many people in positions of power who would not want the market to crash before the election as this would likely favor any candidate perceived as opposing the "status quo" in Washington. (Currently that would be Donald Trump). The Federal Reserve may try and stave off a crash by not raising interest rates for the rest of the year, and there was even speculation by financial analysts last week that the Fed could bring in another round of bond buying or QE to keep markets buoyant.
A second factor that argues against a crash now is the fact that the Brexit vote creates more instability for an already weak European economy. Global investors may now see U.S. equity markets as a relatively safe haven for investing. (Our economy may not be in great shape, but it is doing better than many crumbling European and Asian economies).
Lastly, we need to keep in mind that Friday's plunge was at least in part due to the surprise of the Brexit vote, and it could be a temporary knee-jerk reaction (albeit a big one). For this reason, and the others stated above, we will watch carefully for a bottom to form, especially late this week and into the first week of July as this is another strong reversal zone for the broad stock market. If markets don't plunge too far and they start to stabilize, we may have a good opportunity to go long after this substantial correction. Holding my short position in the broad stock market for now.
Unfortunately I did not reinstate my short position in crude oil before markets opened Friday and so missed out on most of crude's plunge that day. Crude prices could now be making a double bottom to the low of $46.40 on June 17 (August contract chart) or they could make a new low into our original target range of $40 - $45 this week or next. We will watch for a bottom now as the current medium-term cycle is due to end and a new one should start soon. If prices can stay above $38, we will probably look to go long in crude soon as the start of a new cycle is always at least short-term bullish. Currently out of crude oil.
In last Thursday's blog on gold and silver I wrote:
"A vote to leave the EU would almost certainly weaken the euro currency and propel the U.S. dollar higher. Under normal circumstances this would put downward pressure on the precious metals, but if investors fear a collapse in global equity markets they may run to gold and silver as a safe haven. In this situation we could see gold and the dollar rise at the same time."
This seems to be happening. After the Brexit announcement the euro plummeted, the dollar rallied, and both gold and silver surged up with the dollar. Both metals made new yearly highs last week, and their charts are looking quite bullish. Gold started a new medium-term cycle on May 29, but silver is nearing the end of an older cycle and should be taking a correction to its final cycle bottom soon. The reversal zone coming up late next week and the following week (first week of July) could be the turning point for a downturn if silver rallies into it. We may look for a spot to sell silver short if that set-up happens, but once silver's cycle bottoms, we will most likely be looking to go long in both silver and gold as the longer-term trend for the precious metals seems to be turning bullish. Out of both gold and silver for now.
The final tallying of "Brexit" votes last Thursday night which favored the U.K. leaving the European Union took many investors by surprise on Friday morning (myself included). This was because the polls on Thursday had favored the "Bremain" voters or those that wished to remain in the EU, and equities had rallied in anticipation of that result. Stock markets don't like surprises, and this one triggered a massive sell-off of over 600 points in the DOW (about 3.4%) and 76 points in the S&P 500 (3.6%). I had posted a trade alert at 6:30 pm EDT Thursday to cover our short position in the broad stock market (based on the polls favoring the "Bremain") but then canceled this and reentered my short position at 1:45 am EDT on Friday when it was announced that the Brexit voters had won. Even if traders did not get my second alert and placed an order to cover a short position, they likely profited as the DOW plummeted nearly 500 points in the first five minutes of trading.
The big question now is whether or not the panic and market plunge will continue into this week. Could this be the start of a market crash? It is possible. Many market analysts currently view the broad stock market as a bubble looking for a pin. The Brexit vote has been quite a sharp pin. There are other factors to weigh here, however, before we push the panic button. Foremost is the fact that we are approaching a presidential election in the U.S. There are many people in positions of power who would not want the market to crash before the election as this would likely favor any candidate perceived as opposing the "status quo" in Washington. (Currently that would be Donald Trump). The Federal Reserve may try and stave off a crash by not raising interest rates for the rest of the year, and there was even speculation by financial analysts last week that the Fed could bring in another round of bond buying or QE to keep markets buoyant.
A second factor that argues against a crash now is the fact that the Brexit vote creates more instability for an already weak European economy. Global investors may now see U.S. equity markets as a relatively safe haven for investing. (Our economy may not be in great shape, but it is doing better than many crumbling European and Asian economies).
Lastly, we need to keep in mind that Friday's plunge was at least in part due to the surprise of the Brexit vote, and it could be a temporary knee-jerk reaction (albeit a big one). For this reason, and the others stated above, we will watch carefully for a bottom to form, especially late this week and into the first week of July as this is another strong reversal zone for the broad stock market. If markets don't plunge too far and they start to stabilize, we may have a good opportunity to go long after this substantial correction. Holding my short position in the broad stock market for now.
Unfortunately I did not reinstate my short position in crude oil before markets opened Friday and so missed out on most of crude's plunge that day. Crude prices could now be making a double bottom to the low of $46.40 on June 17 (August contract chart) or they could make a new low into our original target range of $40 - $45 this week or next. We will watch for a bottom now as the current medium-term cycle is due to end and a new one should start soon. If prices can stay above $38, we will probably look to go long in crude soon as the start of a new cycle is always at least short-term bullish. Currently out of crude oil.
In last Thursday's blog on gold and silver I wrote:
"A vote to leave the EU would almost certainly weaken the euro currency and propel the U.S. dollar higher. Under normal circumstances this would put downward pressure on the precious metals, but if investors fear a collapse in global equity markets they may run to gold and silver as a safe haven. In this situation we could see gold and the dollar rise at the same time."
This seems to be happening. After the Brexit announcement the euro plummeted, the dollar rallied, and both gold and silver surged up with the dollar. Both metals made new yearly highs last week, and their charts are looking quite bullish. Gold started a new medium-term cycle on May 29, but silver is nearing the end of an older cycle and should be taking a correction to its final cycle bottom soon. The reversal zone coming up late next week and the following week (first week of July) could be the turning point for a downturn if silver rallies into it. We may look for a spot to sell silver short if that set-up happens, but once silver's cycle bottoms, we will most likely be looking to go long in both silver and gold as the longer-term trend for the precious metals seems to be turning bullish. Out of both gold and silver for now.
RSS Feed