BREXIT talk is everywhere into today’s vote. It’s impossible to avoid. Here are my two cents from a swing trader’s perspective.
First up, here’s what we know:
- Generally hyped, well known events get priced into the market leading into the event
- A BREXIT would have large effects on the EU, the European bond market and global currency markets
- It’s impossible to quantify all of these effects and their ‘unintended consequences’ over time
- When media and the markets get consumed by an event like this, most people are taking their eye off the ball. They’re missing what’s happening elsewhere in the world.
So what do we do with this information?
Given we can’t know what will happen and said consequences, why worry about it. If anything dire does come from this, it’ll show up in the charts and we can react accordingly.
How do we act on this as traders?
As for positioning after the vote, the technical backdrop is getting interesting for bulls.
The ‘vol ratio’ is an indicator I track to measure fear in the market via S&P 500 volatility futures. It’s simply the front month VIX futures relative to those 3 months out. When this ratio exceeds 1, it suggests there is a rush to protection amongst market participants. This is often referred to as backwardation. When that happens, we can use that as a red alert signal to have our long ideas lists ready for a wave of opportunity that is coming sooner than later.
Now, as this vaunted event happens, we’re seeing that rush for protection.
This is happening while recent breadth on the New York Stock Exchange has been healthy.
So we have this relatively positive backdrop, what else is going on in the world?
One of the most attractive technical developments is in the Emerging Markets. EEM has consolidated for two months and is quietly going for a breakout.
When everybody is chirping about a well known event, they are missing something. It happens time and again. Including now.
Trade ’em well!