The Friday trading session for U.S. markets was rather interesting. The news coverage of the market’s reaction to the Brexit was overdone. The market, as measured by the S&P 500 was down roughly 3% at the close. It was a decent drop for one day, but not all that wild compared to how the media was reacting.
Looking at the market from a technical viewpoint, the movement down hit against a level of support that has been in place for a while. In April the price range was tested and held, then in May the market retraced to the level and support held again. Today we find the market back at that level.
Monday is just as big of a day for the market as today’s post-Brexit was. Why? If the market holds within the support level, this will signal a short-term bullish case for investors. If the support level is broken, then we could see a much heavier sell off. How much of a sell off? It would not be surprising to see the market retrace back to where it bottomed out during in January and February earlier this year.
The direction the market takes off of this sell-off depends on how institutional investors view the additional risk the Brexit throws into the market. How much is tangible calamity and how much is exaggerated political posturing that makes good television? It’s not that the Brexit is a minor event, but, as an investor, you must answering the question of does it some how fundamentally change the path and current assumptions built into current economic projections? What are the near-term implications versus what are the longer-term implications?