BREXIT | What’s Next?
Global markets are deep in the red after the United Kingdom voted to leave the European Union last night with 51.9% of votes in favor and now that the decision is clear, Prime Minister of the UK, David Cameron, resigned following the results. The pound has had one of its biggest one-day drops in history dropping well over 10% while at the same time reaching prices that haven’t traded in over 30 years.
Back in the states the SPDR S&P 500 (NYSE:SPY) is taking a “pounding” as well with pre-market lows currently sitting at $202.09 after closing Thursday at $210.81 equaling a 4.1% drop in value overnight. Money is being taken out of the markets and put into safer bets like gold and bonds as the GLD (NYSE:GLD) and the (NYSE:TLT) are both up in the pre-market session. Expect the markets to be very volatile over the coming days as this news is digested and money managers decide how to allocate funds going forward.
Looking at the SPY (NYSE:SPY) chart you will see that shares are down huge but are sitting right above a big support level in the 200-day moving average that is currently sitting at $202.09 with $202 being a daily pivot level as well. Below that we have the $200 level that has been big in the past so we will want to see how price action behaves around those key levels, but if we do break lower then there is a nice window to the downside. Look for resistance to come in at $204, $206 and $208 if shares decide to go higher but with as much uncertainty surrounding this decision I see it hard for markets to rally. If we get a bounce in the morning it will probably be for shorts covering but we will also have to keep in mind that their will be margin calls that could place further pressure on shares. If you’re looking to trade today, make sure to mind your stops and only trade off key pivot levels as it will be a wild ride over the coming weeks.
Brexit Comments
Panic, volatility and risk-off best summarized the trading session in London overnight … Moving forward, attention will shift to the Bank of England. The markets could need a hand to go through a historical moment. Quick measures should be put in place in order to fight the excessive volatility in the pound, the stock and the bond markets. This being said, given the low-to-negative rate environment in the U.K. and across the eurozone, the BOE’s manoeuvre margin is disturbingly narrow.” — Ipek Ozkardeskaya, senior market analyst at London Capital Group
Markets have reacted sharply to the incoming news — calling it a bloodbath is no exaggeration … At this stage, we feel it is premature to be making new market predictions. Indeed trying to identify the right questions is a big enough challenge for now. It is clear that volatility will not be confined to domestic markets as investors begin to fear an anti-establishment domino effect outside the U.K. In particular, the most obvious question mark is how the EU evolves from a Brexit and what the specific implications are for the Euro area.