Street Buying Ahead of Brexit Vote

Investor’s first read – Daily edge before the open
DJIA: 17,780
S&P 500: 2,085
Nasdaq Comp.4,833:
Russell 2000: 1,148
Thursday, June 23, 2016 8:53 a.m.
Small wonder jobs performed by humans are disappearing rapidly. There is now a robot that fillets fish.
The results of the Brexit vote will not be known today, but not until after 2 a.m. Friday, well ahead of the open Friday.
The market will open strong today, obviously the Street is front running an expected “stay” vote.
I don’t like to buy gap opens, simply because odds favor investors are likely to pay up for stocks with the risk that they catch the high for the day, maybe the high for quite a while.
Assuming the Brits opt to stay with the EU, the announcement prior to the open tomorrow will be up as well. If today closes near my resistance levels (see below), then I expect another gap open tomorrow, but a sell off before 10:00 a.m.
That would be a “defer purchase” and a “trader’s sell,” as I think the decision to stay would be fully discounted, leaving us with an economy the Fed has some serious doubts about, not to mention the uncertainty of our own election in November.
If the Brits opt to “leave” the EU, the market will gap down, most likely leading to a slide into October.
While appearing before the House Finance Committee yesterday, Fed Chief Janet Yellen bemoaned the slump in productivity growth, adding she expects robust growth going forward yet cannot rule out continued slow growth in productivity – hmmm.
Economists and the Fed are puzzled by this trend.
How about corporations pumping money into stock repurchases instead of badly needed capital expenditures ?
Yellen was accused yesterday by Rep. Edward R. Royce (R-Calif.) of essentially propping the market up with its policy. Yellen replied, “We do not target the level of stock prices, that is not an appropriate thing to do.”
Nonsense ! I have been accusing the Fed of artificially propping the market up not just with policy, but verbally with Governors out on the speech circuit.
This creates a phony market that hasn’t discounted existing negatives and leads to another flash crash when the Street adjusts to reality. It happened last August and this year in January.
Big day today for reports on the economy. We get Jobless Claims and the Chicago Nat’l Activity reports at 8:30. PMI Mfg. at 9:45; and New Home Sales and Leading Indicators at 10:00. FYI: Durable Goods come at 8:30 a.m., and Consumer Sentiment at 10:00 tomorrow.
More volatility based on speculation of the vote. Polling stations opened at 2:00 a.m. U.S. Eastern Time. Polls close 5:00 p.m.. Voter turnout numbers sift in after 6:30 p.m.; by midnight 80% of the votes are expected to be counted and by 2:00 a.m. ally votes should be in.
A lot of pundits will be trying to call this one in advance, thus a lot of volatility.
RESISTANCE: “today” DJIA:17,896; S&P 500:2,097 ; Nasdaq Comp.:4,873.
On occasion, I technically analyze each of the 30 DJIA stocks for a reasonable risk, a more extreme risk, and an upside potential over the near-term. I add the results of each, then divide by the new DJIA “divisor” (0.14602) to get the DJIA for those levels. This gives me an internal check on the DJIA itself, especially if certain higher priced stocks are distorting the averages.
As of June 17, 2016, a reasonable risk is 17,518 a more extreme risk is 17,388. Near-term upside potential is 17,901.Support here is being tested.
(I will repeat this regularly to keep readers aware of the potential for an April correction)
The market is tracking a pattern for presidential election years where an administration is in its second term.* The news is bad.
Historically, these markets have declined in Jan./Feb., rallied in March then topped out in early April, plunged in May with brief rallies in June and August and a plunge into October prior to the election.
 STATUS OF MARKET: Neutral – but very, very vulnerable. Expect volatility
 OPPORTUNITY: RISK: Risk high, Profit taking justified.
 CASH RESERVE: 45%. Consider 75% now if tolerance for risk is low.
 KEY FACTORS: Outlook for Q2, and 2016 earnings questionable. Fed has market under its spell.
Note: Source of weekly economic calendar and good recap of indicators:
George Brooks
Investor’s first read
A Game-On Analysis, LLC publication
Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer. Neither Game-On Analysis, LLC, nor George Brooks is registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.

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