Market Alert - The Close

The British aren't going! The British aren't going! That appeared to be the rallying cry to start the week as a poll in the UK post murder of a parliament member against Brexit. A tragedy being used to its fullest: the pro-EU side is saying they have to honor the slain parliamentarian's position on Brexit. Sweet sentiment, but it does not solve the problem for the millions of Brits who have legitimate reasons for wanting out of EU.

That news was enough, however, to spark a gap higher and gains on world markets, including the US. It certainly seemed more exuberant than warranted. Sure the market lost some ground last week on a test of the higher recovery high, but there was hardly rioting in the streets over the pullback or the notion of the UK leaving the EU. Think about it: if the UK stays there is just not that much upside. It leaves things status quo, and status quo is not close to Mai Tai's and Yahtzee as Nicolas Cage said in 'Con Air.' Compared to the financial market downside if it leaves, the Monday action looks just a bit overdone. As one of our traders here in the office said, it is like when a girl is a lot prettier than the guy she is with: she is a lot prettier girl than he is handsome a man. Well, we all got a laugh out of it.

We felt staying power on this kind of gap upside was the more important aspect of the session. Stocks gapped upside, rallied for a half hour and at that point put in the high for the day. All of the indices closed with very respectable gains, but they also all closed well off the highs. Most stocks as well.

SP500 closed up 12 points but also closed 17 points off its high (at 2100 resistance at that). NASDAQ 45 points off its high on a 37 point gain. DJ30 141 points off its high on a 130 point gain. Up, but gave back over half of the gains on the highs.

SP500 12.03, 0.58%
NASDAQ 36.87, 0.77%
DJ30 129.71, 0.73%
SP400 1.02%
RUTX 1.14%
SOX 1.16%

VOLUME: NYSE -57%, NASDAQ -27% (after a big jump on expiration)

A/D: NYSE 3.3:1, NASDAQ 2.8:1

Once again, growth turned back to the lead on the upside. SP400 lost 10 points off its high but closed up 15 points; held more than it lost. RUTX also lost 10 points off the high but was up 13 points. SOX lost 8 points from the high, closed up 8 points; not as strong as the small and midcaps.

Bonds sold off with the 10 year yield moving to 1.67% from 1.61%

The USD/JPY bombed to 103.91, still selling toward 100 yen.

Oil surged almost 3%, closing back in on $50/bbl ($49.40).

Gold recovered for just a modest $2.70 loss on a day when you would think gold would be dumped for risk assets. Shows not everyone is that comfortable, and gold recovered as the stock gains pared back.

Oil stocks held gains but as with much of the market, the also closed off the highs. Chips gained but they also closed well off the highs.

Software was one of the best performers as RHT, CYBR showed.

Industrials were a best performer as well with stocks such as MMM, UTX, CAT doing okay. Not great, but okay.

Retail/consumer related had some good days but some big fades as well. WWW is a play that shot higher early. We waited, it came back, more, more, and ended up with a modest gain compared to the intraday surge. Huge doji. PCLN enjoyed a nice move. Z rallied again.

Big Names struggled. FB closed higher off an upside gap, but gave up most of the move. AMZN gapped higher but couldn't move farther. AAPL gapped upside and rallied, then flipped to close negative. NFLX gapped higher, tapped the 50 day SMA, then reversed; we tried to get in late but the alert made it to the office as the bell range. Will look at that in the morning. GOOG gapped higher but faded most of the move. Familiar stories.

Financial: upside gaps then struggles. GS gapped, rallied through the 10 day EMA, could not hold it, showing a doji. JPM gapped through the 50 day MA's but reversed to flat. BAC gapped to the 10 day EMA then reversed to close at the low. Rallied, but no real reason to rally.

We picked up some MRO and CWEI. Tried NFLX puts but as noted, the alert arrived too late to act on it and we don't trade until the alerts are sent and we receive it just as everyone else.

The key now is how stocks react after this almost euphoric surge that could not hold on. The jump higher to near resistance has some interesting downside setups, e.g. TRIP, RAX, C, MS. Further, while there is still likely some volatility ahead of the Thursday Brexit vote (53% stay, 46% go according to one poll), Monday likely revealed all there is with respect to a 'stay' vote. It surged then reversed much of the move because . . . nothing changes by staying. It is the status quo. It would appear the most of the risk is thus downside in terms of Brexit.

Not too convinced by the Monday action. Still like oil, metals, software, but even those struggled some. The leaders are hanging in, the indices bounced where they had to in order to make a go at a new leg higher, but the closes off the highs leave the large cap indices precarious. The smaller caps (mid and small) are better positioned and closed better. They will have to lead if the indices are to move higher for a new upside leg.

Today is my birthday so the report will be shorter with some of the others here picking up some slack for me. I will provide a brief video and commentary on some plays as always.

Have a great evening!

Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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