Professor’s Comments June 22, 2016
Posted by OMS at June 22nd, 2016
The Dow rose 25 points, closing at 17,830. Volume was moderate, coming in at 91 percent of its 10-day average. There were 120 new highs and only 16 new lows.
Traders appeared to be confused ahead of tomorrow’s vote on Brexit. With mixed signals from the cockpit, I expect more of the same today and probably even after Thursday’s vote. Either way, expect a lot of volatility until the results get sorted out. If the Brits stay, there could be a short-term pop. If they leave, it could be a Black Friday event. All this has me on the sidelines.
Last night, I noticed that even Emeritus did not highlight any stocks for the Honor Roll. So my primary Trend Algorithm has chosen to sit out this vote.
In a way, I can’t blame him. The vote is a Big Deal.
For the past few days I have been talking about the impact a ‘Leave’ vote will have on the UK. But students should also realize that a ‘Leave’ vote will also have major consequences for the rest of Europe as well.
This is because the UK is responsible for contributing 13.8 percent of the funds that support Europe’s Central Bank (ECB). And without that contribution, it brings into the question the viability of the ECB itself.
The ECB is very similar to our Fed. It’s basically a house of cards that works only because people trust it. The ECB is not a real bank. It only has ‘assets’ of about $12 Billion to cover a ‘debt’ of overt $3.5 Trillion. Any ‘real’ bank would be bank-rupt by this measure.
This is the real danger I see in tomorrow’s vote. If the UK decides to pull the plug on its support for the ECB, it could expose this ‘house of cards’. People will start to see the ECB for what it really is, and lose faith in the system. If this happens, the instability it will create in world markets could be significant.
This is one of the reasons that I’m watching the major bank stocks now. Some, like Morgan Stanley (MS) and Bank America (BAC), look particularly vulnerable in this environment. If the UK votes to ‘Leave’, it will almost certainly lead to some type of new stimulus program both here and abroad. And with the Fed and ECB so highly leveraged at this point, I don’t see them doing another QE type of bond selling program. The last four QEs didn’t work. All they did was create a massive amount of debt. So they will likely try something else. And that something else, like even lower or negative interest rates, both in Europe and here in US, could be very bad for Bank stocks.
Since September 2015, MS has been in a downtrend with its 50 below the 200. BAC has been in a downtrend since January. The recent rise in MS from 21 to 28 can be viewed as the ‘Blade’ of a major Hockey Stick Pattern. So if things start to get tough in the banking business, it’s conceivable that with a 14 point ‘Stick’, MS could be trading in the mid-teens. In other words, it’s share price could get cut in half!
This is why I’m going to spend the next two days watching. The polls on Brexit are running about 50-50. And with even odds on stakes so high, this is one game I will not bet. IF Britain does decide to take its money and run, Friday could be a very bad day for world markets.
BTW, I exited my trade in CLR and BP way to early yesterday. CLR finished the day up $1.83 after being up over 2 points. BP finished up 73 cents after being up almost 90 cents. The gold trade I was watching never fired. Students should remember these Honor Roll trades the next time my VTI changes direction. It’s one of the indicators I’ll be watching in the days ahead.
That’s what I’m doing,
h
Market Signals for
06-22-2016
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | NEG |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEU |
SUM IND | POS |
One hour video recorded from May 28, 2016 The Professor’s Signs of a Major Market Turn – Prospectives and the Projected Timing and Levels One hour streaming video – includes webinar handouts The Professor usually holds an update class whenever the Market looks like it may be making a major turn. If you have been following the Professor’s Comments you know that a turn is due….. LEARN MORE
Not sure of the terminology we use? Check out these articles
The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ
All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.
Category: Professor's Comments