Well, we are pretty much One Month away from the EU ‘In’ or ‘Out’ Referendum on 23rd June 2016. I have mentioned many times how I expect the Markets to struggle in the run up to the Vote and I think the Best Case Scenario for Bulls is that the Markets just tread water and go sideways. In my view, it is more likely that we get some falls before the Vote, simply because I expect a ‘Buyers Strike’ where there will be a lack of people willing to commit Money on the Long Side unless Prices are Super Cheap - which obviously implies the Prices will need to fall.
Summer is a difficult time for the Markets even in years where there is no political drama carrying on - so throw in the Brexit Risk and it is hugely likely that the Downside Risk is significant. My guess is that any Rallies will get sold into as people use them to lighten up Risk and Exposure prior to the Vote - my own view is that Brexit will not happen, but the mere Fear or Risk of it will scare many People out of the Market.
History for the Coming Week and the June Market
According to the UK Stockmarket Almanac, the coming Week (w/c 23rd May 2016) is Up for 41% of Years with an Average Return of MINUS 0.3% - so the Historical Precedent is weak.
As we are nearing the end of May, I thought it would be worth looking at the Historical Returns for June. I wish I hadn’t looked - it turns out that June tends to be worse than May and is the 2nd Worst Month of the Year (May is the 3rd Worst and the Worst is September). June has been up for 38% of Years with an Average Return of MINUS 1.0%. In fact, it has got worse since 2000 with an Average Return of MINUS 2% and in 8 Years since 1982 the Market has fallen more than 3%. June tends to start strongly for a few days and then it all slides !!
So, even without a Brexit Vote, June has a very poor record. I will be keeping my tatty Shorts on………
The Chart below from the marvellous ShareScope as usual, shows the FTSE100 Daily Candlesticks for most of 2016 so far. The first thing to look at is how the Price has got out of the Blue Parallel Downtrend Channel Lines that I have shown for a coupe of weeks - this is a Bullish development but it is worth noting that the US Markets are still within a similar Downtrend Channel - as we will see on the S&P500 Chart in a bit.
My Black Arrow is pointing to a big Up Candle from Friday 20th May 2016 - this pretty much reversed all the Losses from the Thursday before but note how the Move Up was capped by the 200 Day Moving Average (the Faint Blue Wavy Line thing) at about 6160. Note also that the 50 Day Moving Average (the Darker Blue Wavy Line) is up at about 6200 and may act as another Level of Resistance to a move upwards.
I think it was last week that I suggested a possible Range between the Green Horizontal Lines on my Chart - this still seems to be playing out give or take a few points at either end.
The Chart below has the Bollinger Bands laid over the Daily Candles for the FTSE100 going back about 9 months. My Black Candle is pointing to where the Price has got quite near the Bottom Bollinger Band (these are the Blue Wavy Lines above and below the Price Candles) and turned up on Friday 20th May 2016. One slight problem here is that the Price didn’t touch the Bottom Bollinger Band - it’s not that big an issue but ideally a touch and then move up would be better. At the moment it looks quite Bullish but of course if the Range we have talked about earlier is in play then this Signal from the Bollie Bands may not mean a lot.
I showed a similar Chart to the one below last week I think. The key thing here is marked with my Blue Arrow where there was a 13/21 Day Exponential Moving Average ‘Death Cross’ - the Red 13 Day Line crossed the Green 21 Day Line from above. The Red Arrows point out recent times where similar Death Crosses occurred.
This latest Death Cross is still in force and so far is proving very prescient.
There’s something I want to point out on the Chart below. I got a bit imaginative with the colours. Anyway, this is the Daily Candles going back for about a Year and a Half, but what I want to show is a possible ‘Head & Shoulders’ formation. My Grey Circles could be the Shoulders and the Yellow Circle would be the Head - if this is correct, then it would be Bearish and mean that if the ‘Neckline’ at about 6000 fails, then we could see some big falls.
I still get the feeling that the recent moves are a Move Down for 3 Weeks, followed by some Sideways Consolidation (we have had 2 Weeks of this) just before another Leg Down.
The Chart below has the Daily Candles for the S&P500 for most of 2016 so far. As I hinted above in the FTSE100 bit, the S&P500 Price is still within the Red Parallel Lines Downtrend Channel (marked with my Red Arrows) - this is the dominant feature here.
My Blue Arrow points to the Up Candle which was generated on Friday 20th May 2016 - note the ‘Wick’ or ‘Tail’ up above the Candle Body which shows that the Price fell back by the Close of the Day and couldn’t hold the Intraday High at 2058. This shows a lack of Strength but also 2058 is up at Resistance from the 50 Day Moving Average, which is the Darker Blue Wavy Line.
The Chart below has the Daily Candles for the S&P500 going back about 9 Months ish. The Key thing here is the Blue Wavy ‘Bollinger Bands’ both above and below the Price Candles. My Black Arrow is pointing to where the Price touched and overshot the Bottom Bollie Band on Thursday and then on Friday the Price moved up away from the Bottom Band - this is bullish behaviour.
The Chart below contains a Black Arrow which is pointing to where the S&P500 recently did a ‘Death Cross’ between the 13 and 21 Day EMAs. This is still in force and for as long as the Red 13 Day EMA stays below the Green 21 Day EMA, then the Price will be falling.
The Chart below has the Weekly Candles for the S&P500 - my Black Arrow points to a ‘Long Tails Doji’ Candle which was produced last week - this is not a Reversal Signal although they can act in this manner (obviously after 3 Down Weeks then if it is a Reversal Signal, we will see a rise now). However, it does suggest that the force of the Downmove from the last 3 weeks is waning.
Not much has changed on this Chart from recent Weeks really. The Dominant Feature is the Blue Parallel Lines Uptrend Channel and the Price is still nicely within these confines. Obviously the Price needs to get over $50 Resistance just up above and then $54 will be a tough challenge to get over. On the Downside, Support at $47 and $46 etc. will kick in to keep the Uptrend going I suspect.
Following on from last week, my Chart keeps the Black Line (marked with the Black Arrow) and the Red Line (marked with Red Arrow) which form a Triangle within which the Price was moving. You should see that the Price got up above the Black Line earlier in the Week but then fell back within the Triangle. This Triangle is still valid really and we are at a Key Juncture - either Support from the Red Line at the bottom holds and it tries again to breakout of the Black Line to the upside, or the Red Line Support Fails at about $1243 and we go lower.
However, even if the Triangle does break to the Downside, all is not lost - there is a lot of Support around $1230 to £1200 ish. Note the Price is currently sat on the 50 Day Moving Average (the Darker Blue Wavy Line) at about $1250 - this could act as Support.
That was a nice quick run through tonight, and not much has changed really - apart from my scaring everyone by looking at the June History !!
As I mentioned at the start, I cannot see the Indexes making much headway before the Brexit Vote, and I expect the next few Weeks to be pretty tedious !! I hope everyone can stay awake and find useful Research / Learning etc. to fill the time - no point in Trading for the sake of it. Go and dig through my Blog Archives - that will keep you busy and off the Streets.
Best Wishes to all, WD.
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