Continuing Friday’s selling traders and investors alike collective sold stocks lower as political pundits rush to get their opinions heard on Brexit. Regardless of the vote, the market is clearly trying to re-price the British leaving the European Union. Financials are taking the brunt of the selling, but no more than materials and energy. All three groups were leading the S&P 500 lower with materials down more than 3% on the session. Volume was running lower than Friday’s session. The outlier is the VIX showing fear subsiding. Could it be market participants remain complacent? Is the market simply broken? Broken or now it is clear we are in for some choppy trading. It is best to stand aside and avoid the hero complex.
The past two days have been devastating for plenty of stocks. There are a few holding up since the Brexit vote, but for majority of stocks they have been hit hard. Small caps have taken a beating since Friday. IWM is now below both its 50 day and 200 day moving average and nearing its May low. QQQ took out its May low as another death cross nears for the ETF tracking the NASDAQ 100. SPY had been holding up along with DIA, but now both are below their 50 and 200 day moving averages. The market has simply lost its ability to price in these events due to Central Bank actions. Pricing of risk is simply non-existent for the most part. Nothing is free.
Futures markets are now pricing in a rate hike in 2018. Yes, no more rate hikes until 2018. If this type of action continues it would not surprise us to hear of a QE4 program in Jackson Hole this year. Sadly, to avoid the market from finding a natural price (one free of Central Bank intervention) we need another QE program. From all measures, the economy is not going to grow above 2-3% any time soon. In fact, tomorrow’s GDP reading for the first quarter is expected to come in at 1%. Not the growth needed to push this market higher without some help.
The best course of action is to avoid trying to be a hero and not cut your losses. Stay patient as summer trading is here. Good luck this week.
