Another rally above SPX 2100 was cut nastily short this week as the Brits voted by a modest
margin to exit the EU. Plainly, as the vote approached, players were zigging, blissfully unaware
that British voters were set to zag. In my view, the EU has been enough of a flop over the past
ten years that the Brits were warranted in no longer wanting to remain. But the timing of the
exit was bad as the EU, off its own bat, had not yet done enough damage to the UK to draw a
sizable majority of seething voters. The comparatively thin margin of 52 -48 plus the obvious
demographic divide of old vs. young captured in the vote is going to leave acidic recrimination
and contempt in its wake and it will put enormous pressure on England's righty old farts to show
clearly how Brexit will be a major blessing in disguise for the young. PM Cameron gets the 2016
Talleyrand Award, for he made not just a mistake, but a blunder instead.
It could easily take a few more days for both traders and investors to ransack the news to assess
whether the further unwinding of pro - remain bets will set off additional destabilization in the
markets and to come up with working assumptions about the after - effects of the vote for the
global economy and the markets in the months ahead.
It is worth noting that Friday's rout of the SPX stopped around 2016 support in the 2040 area.
The top panel of the chart shows the VIX or volatility index. A sharp rise in this measure often
reflects both instability and fear in the markets and a boost in the VIX above the 20 level
signals enough trader apprehension to warrant concern of more market price downside ahead.
Note also the MACD indicator. It is on the verge of the first negative "cross" since the rally
began in Feb.
The SPX has made powerful progress since its 666 low in Mar. 2009. It commands a p/e ratio
above 20x. It doesn't owe us anything. Gains from this level are gifts from the Gods and not
to be squandered.
You should show up on Monday to see if the bloodletting is complete.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!