Brexit is Official - Big Downside Ahead

We now know the Fed is on hold for the foreseeable future. Markets are now focusing on Brexit. The referendum has gone decisively in favor of a Brexit. This is all set to rock risk assets with some significant downside. A set up very similar to August 2015 and January 2016 is developing. Lets look at some key drivers:

1) The Vix:

Volatility has begin to surge yet again with the Vix eclipsing the 20 mark. The Vix has not made new lows with each of the recent highs in the S and P 500 and could eclipse its February highs soon:

2) The Yen:

The Yen has just made new highs for 2016 and is looking to head to the 100 mark as risk aversion and carry trade liquidation become the game in town:

3) Gold:

Gold is also benefiting from its safe haven status as paper assets go out of favor. Gold is sitting very close to its 2016 highs:

4) Commodities:

Economically sensitive commodities like copper and oil have resumed major break downs and are likely to head much lower as global economic weakness takes center stage:

5) Stock Markets:

European markets are already sporting big break downs along with emerging markets and the trend is likely to continue and spread to markets in the US and else where:

Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning June 13

Indicator	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	2096, -0.15%	Neutral	Neutral
Nifty	8170, -0.62%	Neutral**	Bearish
China Shanghai Index	2927, -0.39%	Bearish	Bearish
Gold	1276, 2.39%	Bullish	Bullish
WTIC Crude	48.88, -0.04%	Neutral	Neutral
Copper	2.03, -4.41%	Bearish	Bearish
Baltic Dry Index	611, 0.16%	Neutral	Neutral
Euro	1.132, -0.46%	Neutral	Neutral
Dollar/Yen	106.92, 0.37%	Neutral	Neutral
Dow Transports	7765, 0.45%	Neutral	Neutral
High Yield (ETF)	35.28, 0.43%	Neutral	Neutral
US 10 year Bond Yield	1.64%, -3.81%	Bullish	Bullish
Nyse Summation Index	990, 17.45%	Bullish	Neutral
US Vix	17.03, 26.43%	Bearish	Bearish
20 DMA, S and P 500	2083, Above	Bullish	Neutral
50 DMA, S and P 500	2076, Above	Bullish	Neutral
200 DMA, S and P 500	2015, Above	Bullish	Neutral
20 DMA, Nifty	8043, Above	Neutral	Bullish
50 DMA, Nifty	7891, Above	Neutral	Bullish
200 DMA, Nifty	7772, Above	Neutral	Bullish
India Vix	15.97, 6.50%	Neutral	Bearish
Dollar/Rupee	66.97, 0.28%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	6	5
Bearish Indications	3	5
Outlook	Bullish	Neutral
Observation	The Sand P 500 was unchanged and the Nifty fell last week. Indicators are mixed. Markets are failing at resistance again. Time to tighten those stops.
On the Horizon	China – New loan data, Japan – Rate decision, Australia – Employment data, New Zealand – GDP, Switzerland – Rate decision, England – CPI, Rate decision, U.S – Retail sales, FOMC rate decision, CPI, Canada – CPI
*Nifty	India’s Benchmark Stock Market Index
Raw Data	Courtesy Google finance, Stock charts, FXCM
**Neutral	Changes less than 0.5% are considered neutral

The Sand P 500 was unchanged and the Nifty fell last week. Signals are mixed for the upcoming week. The big move up in the Vix is suggesting some serious down side ahead. The markets are failing at resistance and are likely to continue major breakdowns in 2016. 

The critical levels to watch are 2110 (up) and 2080 (down) on the S & P and 8250 (up) and 8100 (down) on the Nifty. A significant breach of the above levels could trigger the next big move in the above markets. You can check out last week’s report for a comparison. You can also check out support and resistance levels of the S and P 500 and Nifty Indices. Love your thoughts and feedback.

Chart of the Day - Growth in the S & P 500, P/E Ratio, Earnings

The chart of the day is courtesy the SRSrocco report and is a comparison of the increase in the S and P 500 and its P/E ratio since 2011 relative to its change in earnings.  A pretty big divergence is seen with earnings growth lagging far behind. Either the earnings growth has to catch up or prices have to come down in line with the sub par earnings growth observed.