The S&P closed at 2,019 on Wednesday and failed to recover that level on Thursday. Friday's sharp decline to 2,096 put it well away from that high. There is a good possibility that Wednesday high could last for several months. The market normally moves up the day before a Fed meeting announcement and then declines on a sell the news event. With the Brexit vote on the 23rd and it looks like the exit camp will win, that could put the market into a decent decline into the summer doldrums.

The economic calendar for next week is very busy but the only events that could move the market are the Fed announcement and the Yellen press conference. Because it is a quadruple option expiration week there could be significant volatility.

The Brexit vote on the following Thursday could be a serious hurdle to cross if the polls continue to show the exit faction in the lead. The poll on Friday showed the leave faction at 55% and the stay faction at 45%. That 10% spread could be very difficult to overcome in only a week and the momentum is on the side of those wanting to exit.

In reality, there will be no immediate economic impact from the vote since it is nonbinding. It simply tells lawmakers what to do. They will likely take several months to file the appropriate Article 50 request to exit with the EU ministers and that starts a two-year countdown clock before the actual event. Nothing will change over the next year so all the market fear over a Brexit is misplaced.

However, perception is reality and what traders think, even if it is wrong, is how they will act. Therefore this could weaken the European markets and that will weaken the U.S. markets.

If by chance sanity returns and traders begin to realize there is no immediate impact we could see no material decline after all. We could actually see a short squeeze if enough traders went short without enough information on the actual event.

However, these big events do push people to the sidelines simply because of the uncertainty. Add in the worry over a possibly incendiary Republican Convention in late July could be another troublesome event.

The terrorist shooting in Orlando this weekend is weighing on the futures and they are down -5.5 points as I type this. While this type of event has no direct impact on the market it does produce a sentiment reflex. If we were to have 2-3 of these in a relatively short timeframe it could cause serious harm but one every six months is tragic but not market moving.

The S&P appears to have failed at resistance that has held for 11 months. However, a two-day decline is just profit taking rather than an actual failure. A decline back to 2,050 would be a failure. Resistance remains 2,115 to 2,128.

The Dow failed to return to the resistance from April at 18,165. The index came to a dead stop at 18,000 where it held for four days before falling -172 intraday on Friday and closing with a -119 loss. The 17,925 resistance is now back in play. If the Dow declines back below 17,500 I believe we will see an even deeper decline in the months ahead. That is the key level to watch.

The S&P-400 Midcap Index remained the strongest of the major indexes. The $MID came within 23 points of a new historic high. Support is 1,425 and well below the current level. So far this is just normal profit taking. A breakout over Wednesday's close of 1,525 could put a spark under the rest of the market.

I would continue to be cautious about new long positions ahead of a potential June Swoon. The months of June/July are not normally good for the market. June is typically flat to slightly positive in the first two weeks and peaks in option expiration week, then closes at the lows for the month. Give the FOMC meeting and the Brexit vote I would be surprised to see a major rally from here.

Jim Brown

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