Sunday, June 26, 2016

A matter of perspective

Brexit. Greenspan says this is the worst period since he has been in public service. They say it's the worst step backward for Europe since World War 2. And it has far reaching security implications. The pound reached its lowest level since 1985. Take your pick of any of these news items. Either way, its big. Very big. Exactly how big, perhaps we will realize only decades later. The markets reacted the only way they know how to react to news like this. Let's have a look at the S&P and NIFTY (Indian stock index charts) now.

As you can see it was a disastrous day and the markets made their lowest lows since.....(drumroll)......May 2016!! Wait a minute!! That's it?? An event of earth shattering proportions and we have reached where we were last month! Talk about an anticlimax. So, let's just sit back and analyze. The trouble with days like Friday is that everything seems to unfold very quickly. At times like this, it helps to take a deep breath and look at the bigger picture, even if the bigger picture is just a three month daily chart.

The markets, with all the poll predictions, had got complacent about Brexit and what caught on the wrong foot when it actually happened. Hence, Friday happened. While it would take us at least a few years to analyze the true impact and implications of Brexit, the market's reaction from Friday, from the above charts, it doesn't look that bad at all. The S&P is stuck in a trading range for the past three months. Not surprising, if you consider the fact that it is still 10% since February. Brexit or no Brexit, consolidation has to happen after a move like that. And still over MA(200). No damage done so far. If anything, the Indian market chart only looks better than S&P.

All of the above makes Monday an important day in my opinion. A dull boring day would mean that the markets are quite pleased with how they have assessed the risk on Friday. Another day like Friday would mean that markets are still unsure of the impact of Brexit and are still trying to learn how to price it in. Either way, the next 2-3 days are going to be exciting!!

In case you are interested, here is my take on long term implications of Brexit.

Take care and good luck!

You can follow me on twitter for latest blog updates. Also, here is the link for free subscription to the blog.

No comments: