TSP Talk Blog

Stocks opened sharply higher on Thursday as late surveys showed the British were leaning toward staying in the EU, and as the day went on, more polls got stronger in the remain side. The Dow ended the day up 230-points. The question after that was whether, in fact, that was going to be the referendum result.

Update: The Leaves have it and apparently Britain may be leaving the European Union. The polls have been close but this is quite a surprise and the market stock futures are down very sharply. It won't happen overnight and there will be push backs and renegotiation, but for now, the Leaves have it.

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After the close on Thursday even more polling came in and the futures shot up again, but as I write this about 7:30 PM ET, they have pulled back sharply again in some very early results with "Leave" actually leading, so as the votes come in the volatility will continue and it looks like it is close enough to shake things up after the market all but priced in the "Remain" side.

The question for investors is, what happens if the vote does turn out to be "Leave". The consensus seems to be that stocks would sell-off dramatically as the futures are indicating early. The other concern, even if the result is a "Remain" is a potential sell the news reaction after everybody bought the rumor. By the time you read this we may have the answer.

If the gains from yesterday can hold on Friday, the S&P 500 would have its highest weekly close since last July.

The Russell 2000 does its annual rebalance today (Friday) and that means volume could be very high today, and there could be more volatility, but in theory it shouldn't effect price all that much, but of course the Brexit trading will trump everything on price direction today.

The SPY (S&P 500 / C-Fund) rallied and came within about a point of a new 52-week high yesterday. The open gap on the upside was filled (blue) leaving the gap near 207 as the nearest open gap. So the question is, new highs or another pullback to fill the gap?




The DWCPF (S-fund) rallied 1.8% and moved into the overhead open gap but it did not get filled yet. The small bull flag we noted yesterday did break to the upside, and there's no doubt that this chart looks bullish on the surface. Whatever underlying problems there are in the market or economy are not showing up here.




The Dow Transportation Index is another story. It rallied about 1% yesterday but it is below some key resistance levels and all of the major EMA's. There's a bear flag forming, but a move to the upside could change that to a "V" bottom. It needs to rally soon or this leader could be flashing another warning sign for stocks.




The EFA (I-fund) was up nearly 3% yesterday and surprisingly, those 4 open gaps(blue) we saw open earlier this month were all filled within 5 days. That's volatility! On the way up, however, two new gaps were opened up.




The HYG High Yield Bond Fund gapped up again and made a new high yesterday. Another positive sign for stocks, but there's two small gaps below that may need to get filled.




The AGG (Bonds / F-fund) pulled back as money moved from bonds to stocks, but any blinking by the bulls because of a close Brexit vote and it could send them back into bonds.



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Thanks for reading. Have a great weekend!

Tom Crowley


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