Stocks opened lower Tuesday as the market continues to price in the potential Brexit, or British exit from the Euro Zone. It was the 1st 4-day losing streak for the S&P this year. The bears did a good job of holding stocks down until the last hour of trading where we saw a combination of bears letting up, and dip buyers stepping, but still the indices all closed with losses. The Dow gave up another 58-points.
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The intraday chart of the S&P 500 shows the late reversal a little better...
A little follow-up to the London FTSE Index which broke down as fear remains high that there could be a shakeup in the Euro Zone.
I added this late on Monday night so some of you may not have seen it. So sorry if this is a repeat for you... While the polls are suggesting a "Yes" vote on the Brexit by a 10-point margin, the betting community has their money on "No". By a large margin: 43% "Yes" and 58% "No" as of this writing. The betting community is usually a pretty savvy bunch. This site may be blocked on your work computer, but see predictit.org for more info.
China was rejected by the MSCI to be a part of their Emerging Markets Index so that could shake up some Asian markets on Wednesday.
The FOMC meeting is today and we should get the monetary policy statement announcement at 2 PM ET. No rate hike is expected today, but clues to when they will resume hikes may still move the market.
The FOMC meeting is today and we should get the monetary policy statement announcement at 2 PM ET. No rate hike is expected today, but clues to when they will resume hikes may still move the market.
The SPY (S&P 500 / C-Fund) fell sharply again on Tuesday, but did get a bounce off of the 50-day EMA. This is where the bulls would expect to bull market to resume so it is a big test for stocks. There are small open gaps both above and below and I suspect a volatile move from the Fed could see one or both get filled today.
This longer-term chart shows a break down from the rising support line, but again the 50-day EMA held. This is a warning sign but not a deal breaker until we get 3 to 5 closes below support.
The DWCPF (S-fund) is just north of the rising support line and the 50-day EMA so it is in slightly better shape than the S&P 500 right now.
The Dow Transportation Index continues to deteriorate below some key levels, and I marked some potential areas of support should the downside continue for this market leader which, because it is a leader, makes this action troublesome for stocks.
The EFA (I-fund) gapped lower for a 4th straight day as the European markets position themselves for a potential British exit from the Euro zone. I still think the polls are not as accurate as the betting sites so this could be setting up a good buying opportunity in the I-fund. Of course if I'm wrong the damage could be rough - or we could see a "buy the news" reaction after this "sell the rumor" action. Yesterday's losses did fill an open gap (blue).
The dollar came close to filling that large gap left open by the jobs report a couple of weeks ago. If the "Brexit" goes through, we could see a big spike in the dollar. If it fails and Britain remains in the EU, the dollar will likely pull back sharply.
The Volatility Index closed at 20.50 which may be a reversal since it move over 22.0 intraday. Of course the Fed could shake things up again so you never know.
The AGG (Bonds / F-fund) was down slightly but remained in the narrow rising trading channel - awaiting the important Fed policy statement.
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Tom Crowley
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