Introduction

Brexit or not to Brexit, that is the question affecting the market today. As polls continue to lean towards no-Brexit the market rises. Polls closed today at 5PM eastern time, the first results are due in around 10PM with the final tally due early tomorrow morning. In the meantime we have a bit of economic and earnings data to think about, such as housing and labor trends, as well as the results of the latest Fed stress test.

International markets traded higher today as well. The outcome of the vote is still unclear but Britain not leaving the EU is generally accepted. Asian indices were a bit mixed, mainland Chinese markets ended the day slightly lower while Hong Kong and Japan both made gains greater than 1%. European markets were more buoyant, gaining about 1.5% on average.

Market Statistics

Futures trading indicated a strong move higher at the open, and that is what we got. There was some data and earnings released before the opening bell but it had little affect on trading, the Brexit vote commanding most if not all of the markets attention. After the opening bell the major indices shot up by about 0.75% in the first minute of trading, spent the next 45 minutes or so in consolidation and then drifted up to set an intraday high just after 12PM, near 1% above yesterday's close. Between 12PM and 2PM the indices drifted lower from that high, giving up about a tenth of a percent, before the bulls were able to regain control of the day. By the close of trading the indices had been able to move higher and set a new intraday high, the broad market gaining roughly 1.3% for the day and closing near the high.

Economic Calendar

The Economy

Initial claims for unemployment benefits fell a surprising 18,000 from last week's not-revised figure. This is about 4X the expected drop of 4,000 and brings first time claims down to a two month low. This is the 68th week of claims below 300,000. The four week moving average of claims fell -2,250 to 267,000. On a not adjusted basis claims fell -6.7% versus the expected -0.1% and are now -5.3% below not adjusted claims in the same week last year. California and Pennsylvania lead with increases in claims of 18,762 and 6,427. Ohio and Michigan lead with decreases in claims of -1,101 and -905. Initial claims are still above the long term low set 3 months ago but remain at levels consistent with labor market health.


Continuing claims fell as well, shedding 20,000 to hit 2.024 million. The four week moving average of continuing claims fell -4,500 to hit 2.147 million. Last week's headline figure was revised higher by 5,000 but remain consistent with ongoing labor market health.

The total number of unemployment claims rose this week, as expected, by 43,167 to hit 2.024 million. The rise is consistent with seasonal trends and remains below last years levels. Based on the seasonal trends we can expect to see total claims continue to rise for the next 6 to 7 weeks, the thing to watch will be how high they go. This week's data is -3.6% below last year, a narrower margin than typical over the past few years but nonetheless consistent with ongoing improvements in labor and unemployment.


New Home Sales and Leading Indicators were both released at 10AM. New Homes sales was a mixed bag. Sales fell -6%, not as much as analysts had expected and yet still 8.7% above last years level. The previous month was revised lower but remains strong, the current annualized rate is now 551,000. There is a caveat with this data, the margin of error. The month to month number has a margin of +/- 12.8%, the year over year number +/- 14.6%, both more than enough to completely alter any message sent by the headline report.

Leading Indicators fell by -0.2% from last month's +0.6%. The decline is due primarily to the sharp rise in initial claims seen in May but, if you'll remember, that rise was due to NY allowing educational personnel to claim unemployment while on spring break. Taking this into consideration it is very likely that the leading indicators would have been flat to positive, and sets the index for potential gains this month as that spike in claims has dissipated. The Coincident Indicators is unchanged, following a 0.2% gain in April. The Lagging Indicators rose 0.3% following a 0.2% rise in April.


The Dollar Index

Currency trading was mixed today, the yen fell against the dollar but spikes in EUR and GBP sent the dollar lower on balance. The Dollar Index fell about -0.7% intraday, testing support at the $93 level, but bounced back in mid-day trading. Today's candle is a small bodied black candle with long lower shadow, a possible hammer, with mixed indicators. The indicators are generally bearish, but showing divergences indicative of possible support. The hammer also indicates support is present, helping to confirm the divergences in the indicators, but does not mean support will not be tested again. The Brexit vote is having a big impact on the dollar and will likely result in some strong moves tomorrow. A no vote could very well send the GBP and EUR both moving higher, and send the dollar index back to retest support at $93.


The Oil Index

Oil prices gained nearly 2% in choppy trading to close above $50, barely. The move was supported by declining Brexit fears, as well as 5 weeks of US stockpile draws, lowered Canadian production outlook, increased price targets for Brent crude and a comment from Saudi Arabi that supply/demand imbalances were nearly corrected. Today's move is a positive for oil bulls but risk remains. With prices at or above $50 the likelihood US shale producers will come back on line increases which would put downward pressure on prices. Tomorrow's rig count will be closely watched for signs of increasing production.

The Oil Index moved higher today as well, gaining more than 2.25%. Today's move created a medium white candle that is moving slowly upward toward the top of the recent trading range. Resistance is possible just above today's closing prices, near 1,175, and there is little indication it will be breached. The indicators are mixed, consistent with a trading range, and do not support a strong trend at this time. A break above resistance could be bullish but there is risk of whipsaw if oil prices do not move higher as well. Such a break could go as high as 1,250. Support is currently near the short term moving average, near the middle of the range, around the 1.120 level.


The Gold Index

Gold prices remain under pressure even as the dollar moves lower. Spot gold lost about $5 dollar today, trading near $1,265, as flight to safety trades lose steam in light of receding Brexit fears. This move could be setting gold up for a snap back rally, regardless of the outcome of the British referendum. If the vote is to leave the EU then a flight back into to gold is possible; if the vote is yes the EUR and GBP could strengthen, send the dollar lower and lift gold. Regardless, gold is still trading above support levels near $1,250 with dovish FOMC outlook and likely to remain within recent trading ranges while we await the next round of central bank meetings. A break below $1,250 will likely take gold down to key support near $1,200, a bounce from this level likely will find resistance in the range of $1,300.

The Gold Miners ETF fell a little more than -1% after an initial move higher. Today's candle is a small spinning top type candle sitting just above the support of the short term moving average. The indicators are bearish and pointing lower but weak which may lead to additional testing of support but not necessarily a break of it. If the short term moving average is breached a move down to $24.00 is possible.


In The News, Story Stocks and Earnings

BlackBerry reported earnings this morning before the bell. The company reported a 39% decline in revenue and a widening of losses experienced in previous quarters but adjusted EPS was $0.00, better than expected. The news is bad, no reason to get bullish on the stock, but the fact it was not as bad as expected and guidance was positive, an annual loss of only -$0.15 versus the previously expected -$0.33, helped shares to rise. Today's gain of 3.5% helped to regain some of yesterday's losses, but not all, and leaves the stock trading below the short term moving average with bearish indicators.


Micron Technology received two upgrades from major market research firms Nomura and Susquehanna. Nomura bumped their rating up by two notches, from reduce to buy, while Susquehanna upped their rating from neutral to positive. Both upgrades come with the same price target, $18, which would provide a 42% upside from yesterday's closing price. Today the stock gained more than 11% in a move that broke above resistance on more than 3X average daily volume. First upside target is near $15, next target is $17.50.


The results of the latest stress test were released today after the close of trading. The results were positive. Under what the Fed calls "severely adverse conditions" 33 of the nations top banks were projected to be able to withstand losses of $526 billion, this is up from only $490 billion in 2014. In the statement the Fed seems to be upbeat about the financial sector stating that banks were improving credit and building capital reserves, adding $700 billion in equity capital since 2009. No word yet on whether the banks will be able to increase buybacks or dividends yet, that will be announced on June 29th. The Financial Sector SPDR XLF gained a little more then 2% during the open session, moving up from the short term moving average. After the report was released the leading banks extended today's gains pointing to additional upside for the XLF tomorrow.


The Indices

The indices were able to move higher today, and close at or near the highs of the session. This move is bullish but may be due more to relief over the Brexit, however premature, rather than actual bullish fundamentals in the market. Today's leader was the NASDAQ Composite which gained 1.59%. The tech heavy index created a medium size white bodied candle with shaven top, no upper wick, in a move up from the short term moving average. Today's action is bullish but the indicators have yet to show support. MACD is approaching the zero line but has not crossed over while stochastic is making a very weak bullish crossover, leaving the technical picture vulnerable to quick reversal. If this bounce is able to continue first target for resistance is just above today's closing price near the 4,975 level.


The next largest gain in today's session was posted by the S&P 500. The broad market created a large but not overly strong white candle with shaven top that leaves prices within 1.5% of the all-time high. Today's action moved up from the short term moving average is not confirmed by the indicators. The indicators are mixed, more consistent with a trading than rally, so a break above resistance is not looking likely at this time. First target for resistance is near 2,020, a move above this level would face another potential resistance level at the all-time high.


The third largest move in today's session was made by the Dow Jones Industrial Average. The blue chips gained 1.28% in a move up from the short term moving average that broke above the 18,000 level. The move is bullish on face value but like the other indices, is not confirmed by the indicators. At best, the indicators are consistent with a trading range which leaves today's high approaching resistance. Resistance is just above today's close, near the 18,100 level, with next target near the all-time high. Near term support, should the market pull back, is near 17,600.


The day's laggard was the Dow Jones Transportation Average which gained only 0.94%. The transports made a small bodied white candle, did not close at the high of the day and did not cross above the short term moving average. The indicators are mixed, consistent with a trading range, which makes today's set-up appear to be a selling op rather than a buying one. Resistance is at the short term 30 day moving average, and then just above that at the 7,750 line, and does not look like it will be broken. However, if it is broken the index may move as high as 8,000 before meeting next resistance.


The Brexit, it's finally here after months of speculation and worry over what it will mean for the global economy and the US stock market. In the end I suspect it will be a non-event as I have mentioned before, but nonetheless remains a worry, at least until tomorrow. I suspect it is possible for the market to reach all-time highs in tomorrow's session, driven by Brexit relief, and if so could very easily produce a whip saw. Once we get past the results the market will be able to refocus on the really important issues at hand, tepid economic growth a dovish Fed and poor earnings expectation for the current cycle. I remain cautious in the current environment, hopeful for the end of the year and awaiting the next indication of short to long term market direction.

Until then, remember the trend!

Thomas Hughes