Even the bookies got it wrong. All indications were that the British vote would be to stay in the EU. The market discounted a remain vote with a couple of strong rally days earlier in the week. It didn’t work out that way. In a surprise the British voted to leave the EU and markets were not ready for it. A wave of selling started in Europe and moved to the Unites states when our markets opened. The major averages gapped down at the open and were unable to stage even a weak rally during the day. The losses were significant as the COMPQ fell 4.12% and the SPX was lower by 3.59%. Both closed at the bottom of their intraday trading ranges, a sign of a lack of buying as prices fell. No one would step in to support prices. Volume was much higher across the board. This is not unusual after a big new event, and the Russell rebalancing added to the total. In any event this constituted a distribution day on all the major averages. On Thursday IBD went back to a rally call on the strong action that day. This pretty much killed that as distribution so fast after a follow through like day is usually fatal. Leading stocks were hit hard as well with the leaders index selling off by 3.34%. This is a little less than the overall market, but still a lot. The index closed in the lower part of it’s trading range but off it’s lows. This is better than the major averages performed. The chart od the index now looks pretty bad. It was building what looked like the right side of a cup and possibly setting up a positive outlook. That ended yesterday as the index again lost it’s short term 9dma and 17dma. The index tagged it’s 50dma, but held above this important moving average. Volume on the index was much higher and well above average, but it was not the highest volume on the chart. Yesterday’s action was very negative. The critical thing to look at now is what happens in the next few trading days. After a big decline the quality of the bounce is critical. If the market can stage a strong rally on real volume next week the worst may well be over. If on the other hand the bounce is weak and on low volume then lower prices will likely be ahead. Next week’s action will tell us a lot. Jerry
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