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Tuesday, March 19, 2024

T (Told You So) GIF – Brexit Victory Rocks the Market

Prime Minister David Cameron said he would resign after the U.K. voted to leave the European Union. He said a new leader will be in place by October.Wheeeeeee – what fun! 

What do you want me to say?  I could not possibly have warned you more, I couldn't possibly have said CASH!!! or "Cashy and Cautious" one more time without sounding like an idiot and I could not have given out more hedging ideas or better shorting lines on the Futures to save you from being "surprised" by the vote by the UK to leave the EU and the market repercussions we're seeing today.  In fact, right in yesterday's morning post I told you:  

Nice test of 2,100 on /ES, which is a good shorting line along with 17,8000 on /YM, 4,450 on /NQ and 1,160 on /TF and 16,600 on /NKD is ridiculous since the Dollar is down half a point (93.23) but safer to short the US indexes since the Dollar coming back would be good for /NKD.

This morning I called longs on our indexes in a 3:38 am Alert to our Members and we caught a nice move up and I'm not even going to talk about how profitable yesterday's Futures shorting ideas were since it seems like crazy, unrealistic money when you catch a 5% correction and, anyway, if you missed it – it's not like these happen every day, week, month or year.

That's why I was making such a big deal about it – how often are we able to get ourselves ahead of a major market correction?  As I have been saying, the RISK of the market making new highs and us regretting missing a bit of a move higher were/are nothing compared to the REWARD we now have from flipping short and moving to CASH!!!, where we now get to go bargain-hunting on all those stocks people are panicking out of.

We're in no hurry to do anything, however – let the chips fall where they may over the weekend and we'll see how sentiment is running over the weekend.  Our morning longs have already stopped out and, on the whole, the S&P falling 100 points means we EXPECT a 20-point weak bounce (2,020) and a 40-point strong bounce (2,040) per our fabuluous 5% Rule™ and look at the chart – failure at the strong bounce line so far – that's not a good sign! 

If we only expected a 5% correction, we wouldn't have gone to the trouble of cashing out so many of our long positions and we wouldn't have spent so much money on hedging and we wouldn't have flipped our portfolios bearish, right?  Now, MAYBE we're wrong and the Central Banksters will be able to calm the markets over the weekend and, if so, the bounce lines will tell us when it's safe to get back in but, for now, we maintain our bearish stance.

As you can see from the zoomed out weekly chart of the S&P, the run from 1,850 to 2,100 was 250 points so we expect a 50-point pullback to 2,050 (weak) or a 100-point pullback to 2,000 (strong) and, if the 2,000 line holds up and we get back over 2,050 – that's BULLISH.  So let's see how that plays out but it's all up to the BOJ this weekend, who are the Central Bank most likely to take quick action with the Nikkei (/NKD) back at 15,250 after touching the 15,000 line this morning (where we went long to 15,500 but now out).  

The way to play a rising Nikkei for the weekend is to play the ETF (EWJ), which should open around $11.25 and, with any luck, that should drive the price of the July $11 calls down to about 0.40 or less.  Since EWJ has been over $12 on stimulus, there's the possibility of a quick 150% gain if the BOJ does step in – a fun way to make quick cash!

In the Futures, 15,200 should hold on /NKD so a long there might be profitable but my favorite play of the morning is oil (/CL) at $47.50 and gasoline (/RB) at $1.54, both with tight stops below but both are trades I don't mind holding into next week's holiday weekend because how does the UK leaving the EU make you drive less next weekend?  Kind of obvious, don't you think?

The thing to watch as this drama unfolds is whether or not other EU nations call for referrendums to pull out.  That uncertainty is what's rocking the markets as the Euro is second only to the Dollar as a Global Currency and no one else is even close in 3rd place by factors of 5.  If the Euro breaks in a quick and disorderly fashion – then it will be complete chaos and no one will be safe (though gold will be nice to own).  

As the Chinese like to say: "May you live in interesting times" – too bad it's a curse!  

Have a great weekend, 

– Phil

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