TSP Talk Blog

Stocks were rocked on Friday by the unexpected Brexit vote after polls and bookmakers were predicting that it was not going to pass. Stocks don't like surprises and investors were not positioned for that kind of outcome, and so we saw a major move down. The Dow lost 610-points on the day and we're seeing some of the indices down testing the May lows now.

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The I-fund was punished as we saw some big losses in the European and Asian markets, and the dollar spiked on the Brexit news.

The chart of the S&P 500 futures shows how it played out from the strong rally into Thursday's close, to when the early unanticipated results started to roll in, and eventually the acknowledgement that the "leave" vote was going to win. Stocks opened on Friday with some buying as the S&P futures hit a low of about 2000 late Thursday and actually ran all the way up toward 2070 during the first hour of trading on Friday before things reversed downward again, but it never did hit those overnight lows again.

The futures opened on Sunday evening with some additional losses, but it was contained at about -0.5%, although considering fair value from Friday's late trades has it down closer to 1%. We know the action will be wild this week as traders and investors buy dips, sell rallies, and position themselves for what they believe will be the next move.

The SPY (S&P 500 / C-Fund) gapped lower on Friday after the Brexit vote and on the way, it closed a couple of open gaps. One from last Monday, and other had been open since mid-May. Now the only gap left is the one above 209. Should that get filled in the coming days it would be a good reason for investors to jump out again as they would have regained a large chuck of Friday's losses and that may satisfy them. But that's only if we see a relief rally in the coming days.




The weekly chart shows that Friday's action merely saw the S&P fall to the bottom of the right shoulder of its large inverted head and shoulder pattern. It also still managed to close above the 50-week EMA so the technical damage wasn't severe on the S&P. That could change if the downside continues.




A longer look at the daily chart shows that we have seen sharp declines from time to time with most popping back up rather quickly (green arrows) but some don't and that's where there can be some carnage.




The DWCPF (S-fund) broke below its rising support line (dashed) but it is still in a rising trading channel as it tests the bottom of it now. The 200-day EMA is in the vicinity.




The Dow Transportation Index is the one that was trying to tell us something as it has been wobbling for months after peaking back in April and posting a lower high and a lower low since. Friday's decline has it hitting the bottom of its channel, but unlike the small caps above, this channel is descending.




The EFA (I-fund) has been violently volatile recently as the Brexit vote neared. We saw may gaps open, and with most getting filled, but the one that opened on Friday is a doozy, and there's another small one down near 53 that opened on March 1. The big blue box represents the wide trading range this EAFE index fund has been in for the last 4 months. The 7.88% one-day loss on Friday was one of the worst we've seen in a while. The Italian market lost about 12% on the day.

The dollar ran up as the European currencies plummeted. The 200-day EMA is the immediate resistance.




The Volatility Index, which measures fear, spiked sharply hitting 26. That's not quite the 30-32 we saw to start the year, but it's the highest since.




The AGG (Bonds / F-fund) rallied sharply on the sell-off in stocks, but it did close well of Friday's intraday high after testing the rising resistance line. There are now two large open gaps below.




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Thanks for reading. We'll see you back here tomorrow.

Tom Crowley


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