Major averages managed to stage an upside reversal on mixed volume with the S&P 500 closing at its 50-day moving average, though the NASDAQ Composite and Dow Industrials are still trading below their 50-day lines. The NASDAQ also regained its 200-day moving average after dipping below the line early in the day.
A bounce of this nature is not unexpected given the short, sharp five-day selloff we saw leading into yesterday's reversal. We have seen such action numerous times over the past year and a half where markets find a shallow floor and then begin to rally back up towards their highs.
Markets may continue to see elevated levels of volatility ahead of the June 23 Brexit vote as markets abhor uncertainty, and polls show a very close race between those who wish Britain to stay vs. exit the EU with 53% in favor of an exit.
Should Britain remain in the EU, a relief rally could occur even though this would be bad for Britain as its economy has been dragged lower ever since it joined the EU. So we will keep an eye out for potential buying opportunities in such an event.
On the other hand, should Britain exit the EU, a sharp but short drop in US markets could occur as the life expectancy of the EU is potentially shortened, Europe is pushed into deeper recession, and other EU-member countries could start holding referendums of whether to stay or go. Meanwhile, global central banks continue to print money which would most likely end up in the US markets, helping to push them higher against a backdrop of diminishing confidence and growing social unrest.
Members should remain flexible, keeping a close eye on stocks covered in recent pocket pivot and buyable gap-up reports as they pull into potential areas of support. Those with an eye towards shorting any potential return to the downside should continue to monitor those stocks mentioned in recent reports.