Was there no way of predicting the UK vote? Polls had it wrong. The betting lines had it wrong The politicians had it wrong. The experts had it wrong. I felt that the British would be too 'civilized' to vote to leave after a politician was killed over the matter. I was wrong as well. The only people who seemed to get it right were the reporters in the UK who were asking people how they were going to vote and they could not find anyone voting to stay.
Perhaps the powers that be pulled out all the stops to try and stop the anger rising to a majority desiring to leave. Reports Thursday of strange bets on Brexit in the UK betting lines. The polls, just days before the vote, showed the kind of margin the final vote showed. Yet they skewed away from what the true outcome showed in the last couple of days. Trying to influence the outcome?
As with the Clinton emails that have disappeared, we will never know will we? The outcome, if that was the case, is sweet justice indeed.
So, the world markets were caught with their pants around their ankles. Stock markets, currency markets, bond markets were bombed around the globe. The marlin fell.
Now all that is left is the blame game, the round and round on the financial stations arguing about what to do. Damn those Brits, right? You just cannot trust the man on the street to do the right thing to protect his elites and their elite asses -- assets.
Guest after guest after expert after expert squealed 'we have never been here before!' As I said in the Last Hour alert, sure we have. It is called panic, panic by those who should know better, who have been in these situations before, but refuse to see the facts. So, they make statements about 'never been here before' to cover their failure to adequately structure their portfolios. They are in stocks that got slaughtered instead of the leaders that held up well. They didn't have any downside plays on to at least hedge the downside and protect the upside. I glanced at several option accounts near the close and noted they were higher on the day or at least flat. That is a pretty well hedged/diversified account considering the indices lost 3.5% to 5.75%.
SP500 -75.91, -3.59%
NASDAQ -202.06, -4.12%
DJ30 -610.32, -3.39%
SP400 -3.95%
RUTX -3.81%
SOX -5.76%
VOLUME: NYSE 193%, NASDAQ 115%. Big scare, Russell rebalance, lots of volume.
A/D: NYSE -5.2:1, NASDAQ -5.2:1. Pretty even burn across the board.
Long before the opening bell it was clear US stocks were gapping lower. They did. They then tried a quick snapback. As we warned in the pre-market alert, this likely would not be a one-session event. Sure enough that early rebound attempt failed. Stocks were not slamming back and forth, they were just crawling around with a piano on their backs. They sank from that first half hour bounce off the downside gap, moving back to session lows by the last hour. A bounce in that hour took back some lost ground but in the last 5 minutes faded again.
Stocks just were not, as a whole, going up for the session. And likely, this leads to more downside this coming week as the market tries to reconcile what has happened and perhaps realizes this is not the end of the world. The fifth largest economy in the world decided it was going to rule itself again. It has a trade deficit with every one of the other EU nations. Those nations will scramble as fast as they can to ink trade deals with the UK because the UK is such a good customer. And will the US turn a cold shoulder to the UK as our President suggested when he visited the UK a few weeks back? Of course not. That was all part of protecting the status quo, protecting those in charge. New day, baby.
So, you get some more downside, everyone realizes that, lo, the UK is still there, that it didn't just self immolate. Then stocks try and rebound.
IF . . . the US market is still moving up. Remember, THAT was the big question surrounding the market already without the Brexit issue. The indices were on a recovery move ever since the February low and were starting to bump into the last range from the summer 2015 that held the all-time highs. They were getting to the point where they either going to break higher or roll over.
Some of the big names in NASDAQ that had led the move fell onto harder times, e.g. SBUX, AAPL, FB, even GOOG. At the same time some stocks that had suffered long declines were moving up and providing leadership, e.g. oil stocks. Indeed, many of these held up fine even on Friday.
Big names struggling, others working well, rising off the lows. With money moving into new areas as it left others, the stock market found support to continue the climb into the range of those prior highs.
If that rotation continues into the stocks formerly sold off, the upside can remain, and thus once the turmoil from accepting the fact of Brexit that would present a buying opportunity.
If this blast lower represents the event that breaks the upside's will, then there is a whole lot of downside ahead.
Of course the Fed is always there and can rush the market's aid with more stimulus of some sort. That could stem any selling tide, but there are some smart people out there who posit the Fed and other central banks really have no resources left to really help the stock markets. They did in February, however, and I dare say that we see similar telephone calls and resultant interventions if this Friday selloff continues with earnest.
What does that mean for us? We continue looking for those stocks that are holding up in their patterns despite the market weakness. Those that do are the ones we move into if the selling subsides next week and the buyers return. We have quite a bit of cash right now, indeed some accounts are close to 100% cash, that we want to allocate (school accounts, etc.). We will be watching to see if the washout reverses and leadership is there to lead. If so, we can go back in with those accounts as well as others. If not, we continue to pick up the downside positions as they set up and show their moves similar to what we are doing with AAPL, DIA, FB, and on Friday, AMZN.
Have a great weekend!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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