Professor’s Comments

Posted by OMS  at June 24th, 2016

The Dow rallied 230 points, closing at 18.011.  Volume was moderate, coming in at 91 percent of its 10-day average.  There were 204 new highs and only 9 new lows.

Last night, voters in the UK surprised the establishment by deciding to exit the EU.  Markets around the world are down significantly.  It’s going to be a Black Friday.

World markets rallied early yesterday after polls showed the ‘Remain’ vote with a small lead.  The markets were pushed higher by the supposedly ‘knowledgeable’ large betters, who only gave the “leave’ side a 12 percent chance of winning.  How could they be so wrong?

With about 72 percent of the vote tallied as I write this, the ‘leave’ side was winning by almost 4 percent; 52-48.  The surprise vote tells me a lot about the UK as a nation, and could give us some visibility into what might happen here in the U.S. when we vote in November. 

As the UK demonstrated last night, they were fed up with politics as usual.  They showed just how frustrated they were with the petty dictates of the bureaucrats in Brussels, and the problems caused by unlimited immigration. They wanted change so much that they decided to swallow a poison pill that would devalue their currency and damage their equity portfolios.

I found it interesting when I saw the early returns start to come in.  Scotland voted heavily in favor remaining.  They sell a lot of oil and scotch to EU members.  No surprise there, as they were voting their pocketbook.  Same for the people in and around London’s financial district who voted over 3-1 in favor of ‘Stay’.  A lot of those 2.2 Million financial industry workers will now face years of uncertainty and the risk of thousands of job cuts after last night’s vote.  The vote begs the question as to London’s status as Europe’s premier financial center.  But overall, the rest of the country had seen enough. 

What the UK voted for last night was not about money.  If it was, the result would have been a lot different.  No, last night’s vote was about a country wanting to maintain its identity.  It was a vote of conscience.  The vote was NOT about the present; it was about the future.  So even though today will be a terrible day for them and markets around the globe, you have to give the Brits credit for what they did.  They have my full respect!  A few years from now, Britain will be a better country.  Proud of its past, proud of its future, and proud of its identity. That’s what last night’s vote was about. All of us should think about and remember what the Brits did last night. It gives me hope for the future of our country.

Anyhow, even though the cockpit indicators were positive after yesterday’s trading, they will likely change direction after today.  If the Dow starts to break below 17,485 early this morning, it will likely test the 19 May low of 17,331. If this low doesn’t hold, it’s probably a good assumption that Major Wave 2 up has truncated and that Major Wave 3 down is underway.  This wave could re-test the February low near 15 500.

Yesterday’s late rally caused LNG to finish up 2.22 points.  I bailed on the trade after it was up 1.44.  But I had decided early that I was not going to be holding equity trades with so much at stake. 

Today’s two Honor Roll stocks I posted today should be ignored.  All algorithms do is spot trends based on past data.  When you trade a stock based on an algorithm, you’re assuming that the trend will continue.  No algorithm can predict a Black Swan event, like last night’s vote.

So today, I’m just going to let the dust settle.  The August calls in ABX I bought last week will probably look pretty good today.  If they double, I’ll be looking to take profit.  Remember, when you trade options, you have to set reasonable targets.  I general look for 2 – 2 1/2  times what I paid for the option.  Then once these targets are achieved, I take profits. Otherwise, the time decay starts to work against you. 

But I’m going to hold my basic position in gold stocks.  I bought these thinking that gold will make a run to 1,400 (minimum).  Yesterday’s vote did nothing to change that.  And if gold is heading above 1,400, mining stocks should soar.  Last night, the HUI. The gold miners index,  closed at 225.  It could trade above 750 by this time next year.  Think about this when you’re tempted to put your finger on the Sell Button.

It’s gonna be a rough day.  Hopefully you’ve taken steps to protect yourself.

That’s what I’m doing,

h

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06-24-2016

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