Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Despite Increased Risk Of "Hard Brexit," Markets Moved Higher

Published 01/15/2019, 11:37 PM
Updated 07/09/2023, 06:31 AM

Summary

  • The UK Brexit vote was a disaster of historic and colossal proportions.
  • Another Fed governor has turned dovish.
  • The SPY (NYSE:SPY) broke through key resistance levels today.

The UK's Brexit vote was a historic defeat. I've read several news stories implying this will be one of the worst Parliamentary defeats in history. While I can't comment on that prospect, it does mean that we have a huge problem on the horizon: a no deal Brexit, which means the possibility of a "hard Brexit" (where the UK is a member of the EU one day and not a member the next) is now much higher. This has economic disaster written all over it. In the best of circumstances, both sides would be working feverishly to unwind the entangled economies legislatively. A hard Brexit means the possibility of multiple "unintended consequences" has sharply increased.

We can put Kansas City Fed President George into the "wait and see" camp on interest rate policy (emphasis added):

So, are we there yet? Has the FOMC raised rates back to a neutral or normal level so that they are no longer either stimulating or restraining economic activity? Have we reached the proverbial soft landing where the economy has achieved maximum employment, stable prices, growth at potential, and monetary policy neutrality? In my view, we are not there just yet. However, we are close and for now, it seems to me that we should proceed with caution and be patient as we approach our destination.

Inflation's performance is the primary benchmark for George: should it remain subdued, further rate increases will be unnecessary but an increase would warrant additional action. As an aside, I find it very interesting that after the last Fed meeting there has been universal adoption of a wait and see approach, especially from the more hawkish members such as Mester, Rosengren, and Evans. I'm assuming that the sharp selloff in the equity market -- which is a very good real-time barometer of forward economic sentiment -- was the primary reason for the change.

The latest Empire State Manufacturing report contains a sharp drop in forward sentiment indicators:

Forward-Looking Indicator

The chart shows that sharp declines are rare but not unheard of. While the report didn't explain the drop, the combination of increased volatility, heightened trade tensions, and the government shutdown all probably contributed.

Let's turn to the performance tables:

Performance Tables

This was a solid day. The QQQ rose nearly 2%; the SPY was up a little over 1%. The riskier averages also advanced. The Treasury market was off marginally while the transports dropped.

There continues to be a lot of good news in the charts, starting with today:

SPY 1 Min Chart

Prices moved higher at the open and then moved higher until right after lunch. They drifted lower until they hit the 38.2% Fibonacci level and then rallied into the close, ending the session near daily highs. This is the kind of action technicians like to see: rally, selloff, rally.

SPY 15 Min Chart

Yesterday, I carped on the upper 250's price level because it was providing major resistance for the SPYs. Today, prices moved through this level (finally!).

SPY 30 Min Chart

The 30-day chart shows how this latest rally has evolved. The market advanced from a low at 233, advancing to the upper 240s. Prices consolidated for a few days, sold off to a key Fib level, and then resumed moving higher. Last week, they moved sideways again consolidating gains. Today, we have an advance through resistance. Again -- we have a nice give and take the pattern.SPY Daily Chart

Prices printed a strong upward bar that hit resistance at the 50-day EMA.

The best part about today is that despite a fundamentally bad development -- the Brexit vote -- the markets continued to move higher. Let's hope we can keep this going.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Original post

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.