The Pound fell this evening to its lowest level since the 1980s.
Hope isn’t a strategy
Cautious optimism has evaporated after poor recent polls favoring a BREXIT. I hope that sanity prevails but, as the saying goes: “Hope isn’t a strategy”.
Better to have a Plan A and a Plan B to cope with the two alternatives. But if enough investors decide their money is safer in the bank, then expectations of a fall are likely to become a self-fulfilling prophecy.
The S&P 500 does not appear unduly alarmed but a sharp fall on 13-week Money Flow warns of selling pressure. Reversal below 2000 would warn of another test of primary support (1820 to 1870).
Dow Jones Industrial Average shows a similar picture. Breach of medium-term support at 17400 to 17500 would warn of another test of primary support at 15500 to 16000.
A CBOE Volatility Index (VIX) spiked to 20, indicating increased market risk. Long-term measures remain unaffected.
Europe
Germany’s DAX retreated below medium-term support, warning of another test of primary support. 13-Week Money Flow below zero suggests a primary down-trend.
The Footsie broke support at 6000 warning of a test of 5500. Reversal of Money Flow below zero would suggest a primary down-trend.
* Target calculation: 6400 + ( 6400 – 6000 ) = 6800
Asia
The Shanghai Composite Index continues to range between 2700 and 3100.
Japan’s Nikkei 225 Index broke support at 16000 and its lower trend channel, warning of another decline.
* Target calculation: 15000 – ( 18000 – 15000 ) = 12000
India’s Sensex remains bullish, with a short retracement below 27000. Bearish divergence on 13-week Money Flow would end if the descending trendline is penetrated.
Australia
The ASX 200 broke medium-term support at 5200, warning of another test of primary support at 4750. Expect support at the former level of 4900 to 5000 but it is questionable whether this will hold. Combination of a seasonal sell-off and BREXIT fears are going to test buyers’ commitment.
The Banks Index fell sharply and breach of support at 7200 would offer a target of 6400*.
* Target calculation: 7200 – ( 8000 – 7200 ) = 6400
Health Care is experiencing a strong sell-off, led by CSL. This is a good long-term stock but exposure to the UK/Europe has spooked the market.
Why BREXIT matters
From The Guardian, June 14th:
Support for leaving the EU is strengthening, with phone and online surveys reporting a six-point lead, according to a pair of Guardian/ICM polls.
Leave now enjoys a 53%-47% advantage once “don’t knows” are excluded, according to research conducted over the weekend, compared with a 52%-48% split reported by ICM a fortnight ago.
….Prof John Curtice of Strathclyde University, who analyses available referendum polling data on his website whatukthinks.org, noted that after the ICM data, the running average “poll of polls” would stand at 52% for leave and 48% for remain, the first time leave has been in such a strong position.
If the UK votes to LEAVE, we can expect:
- A sell-off of UK equities. GDP is expected to contract between 1% and 2%. A Footsie breach of support at 6000 would signal a test of 5500, while breach of 5500 would offer a target of 5000 (5500 – [ 6000 – 5500 ]).
- UK housing prices fall.
- A sharp sell-off in UK banks in response to falling GDP, equities and housing — threatening contagion in financial markets.
- BOE rate cuts to support the UK economy.
- A sharp fall in the Pound due to uncertainty, lower interest rates and lower capital inflows.
- The Euro falls in sympathy, as confidence in the EU dwindles.
- The US Dollar strengthens, causing the Fed to back off on further interest rate rises.
- Volatility surges across all markets.
- Gold spikes upward.
Hat tip to The Coppo Report
BREXIT: Stocks to watch
From Bell Potter:
Australian stocks with more than 80% of revenue derived from UK/Europe:
- Macquarie Atlas Roads
- Hendersons
- Ansell
- Amcor
Stocks with 40% to 50% of revenue derived from UK/Europe:
- Cochlear
- CSL
Stocks with 30% to 40% of revenue derived from UK/Europe:
- Resmed
- Brambles