Euphoric gap-up opens like we saw this morning aren't easy fades in the days of computer algorithms, but it was a trade that worked today. The market hit the highs in the early going and then drifted slowly lower all day before finding accelerated downside in the final hour. We still had decent point gains, a large number of news highs and strong breadth, but finishing at the lows robbed the bulls of momentum.
Today's strength was obviously a product of increased optimism that "Remain" will prevail in the Brexit vote later this week. Nothing happened to change the numbers during the day, yet the bulls simply couldn't keep it running. The poll numbers are still close, so there is nervousness, but in view of the early action, it is surprising there isn't more buying conviction.
Markets tied to major political events can be annoying to trade. In my previous post I mentioned the similarity to the debt ceiling issue. There was no way to game that news effectively most of the time, and there was little to do but wait for the issue to resolve and greater clarity to emerge.
One positive I see is that this action is creating decent-looking chart patterns. For example, Weibo (WB) caught my eye today. It has pulled back over the last two weeks to form a bull flag and then moved higher today on good volume.
Even if the "Brexit" situation resolves itself in a favorable manner for the market, there will still be other macro issues to deal with during the dog days of summer. The indices are still holding on to key support but they are under pressure and the potential for a significant correction is increasing.
Have a good evening. I'll see you tomorrow.