There must be 50 ways to leave your union. Slip out the union Jack, Jack. Make a new trade plan, Stan. You don't need to be coy, Roy, just cast your vote to leave. That is an old Paul Simon song ('Fifty Ways to Leave Your Lover'), but with story after story after story on the latest poll or the tragedy and carnage that will surely strike the UK if it should venture from the cozy nest of massive regulation of the EU, fifty seems a good number. And no, not in the context used in 'Along Came Polly.' Just 50 in the sense of a lot.
The stock market was stuck on the issue as well. To leave or not to leave, that is the question. Instead of the Melancholy Dane you have the more and more melancholy Brits deciding what they will do. The 'leave' contingent reportedly took a 1% lead today, but there are still 11.6% undecided. Clearly the outcome is unclear. Lots of people fear change, fear taking action, and indeed fear success. That fear is a hard thing to overcome. Compared it to a bad relationship last night: it is not good for you but the fear of having to go back out on your own keeps some people in crappy situations. Does that describe the British people? We will see.
SP500 -3.45, -0.17%
NASDAQ -10.44, -0.22%
DJ30 -48.90, -0.27%
SP400 -0.23%
RUTX -0.42%
SOX -0.16%
VOLUME: NYSE -3%, NASDAQ -2%. On idle ahead of the vote.
Stocks rallied early, faded to a lower session low and into negative territory mid-session. The afternoon started with a bounce that looked decent for an hour or so, but it stalled, moved laterally, then fell back to session lows by the close. Just too much uncertainty with the EDU (European Dis-Union) vote results coming very early here in the US.
The discomfort is seen in the VIX rise, up 14.29% Wednesday alone. Betting houses received more 'leave' bets but they were much smaller than the 'stay' bets: UK75 versus UK450. Late in the session US options markets saw some tremendous volume spikes in out of the money puts as hedges were placed just in case the Brits vote for the unthinkable: freedom from a massive European bureaucracy. They would still have a huge bureaucracy, but it would be their own bloody bureaucracy.
In any event, the market is closed and now it is up to the voting.
Again, if the vote is to stay, it does not appear there is much upside to that. Perhaps the same action will settle in with oil, software, construction, and the like leading the market in a slow move higher. Indeed, given the polls, bonds, gold, it would appear a 'stay' vote is priced in.
The downside is where the possible problems lie. If the 'leaves' win, world markets likely suffer some downside turmoil. Now the rub: if the UK votes to stay, the downside is STILL the path of least resistance. This is one of those situations where the outcome for those in power is very much needed, but the upside is only holding the status quo. For the elites it is the survival of their status and power. If the UK leaves and prospers, others will question what the heck they are doing in a union that forces them to take all immigrants, comply with inanely complex and invasive rules governing every day life, and otherwise stifle creativity and competition. I mean the Tour de France is cool, but they had it LONG before the EU came around. I just don't think Europe would collapse because Germany could not us the EU to force other countries to do as Germany wants.
Heck, the US has its own version of that going on over here ever since the financial crash and the bailouts that not only saved businesses that should have failed, but then erected massive barriers to entry, thus guaranteeing their survival. That is not the American way, but then again, we are not really the same America that, sorry to say, was great. But, there I go again . . .
The stock indices went nowhere. Up early, could not hold the move, faded to modest losses. That left all the indices in their lateral ranges of the past three months, outside, that is, SOX, RUTX, and SP400, the indices that actually broke to higher highs and are in pretty solid tests of those moves.
That leaves the stock market absolutely at status quo heading into the EDU vote outcome. Again, status quo leaves the growth indices in decent shape, the large caps trying to get it together, and still, frankly, somewhat negative, particularly NASDAQ. The risk for the large caps is tilted more downside, but nothing really suggests carnage unless the fund managers panic, something they NEVER do, right?
On the day we could have loaded up downside given the early bounce that faded. We could have sold out all positions. We instead closed FCX as it was midrange, close to the entry point, and just has not made the move we looked for. Everything else was in a good pattern or at support moving into the vote. If the status quo remains, they look good to go. We have some downside positions in the event of a drop, and we left those on as well because they are on the large caps, the most vulnerable group based upon the patterns.
Again, now it is up to the voting AND more importantly, how the big money managers react.
Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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