"I am the wisest man alive, for I know one thing, and that is that I know nothing."
-- Plato, The Republic
The news media are one group that isn't unhappy about Brexit. They have had endless articles and interviews over the weekend slicing and dicing the ramifications of the Brexit news. From a political standpoint, it is interesting to see how the battle lines have been drawn, but from a stock market perspective the arguments are pretty much what you'd expect. There are the usual perma-bulls that scoff at the significance of this event and then are the long-suffering bears that are convinced that this is a seminal event that will trigger a much-anticipated correction.
The great irony of all this drama is that all those people that didn't see the Brexit vote coming and were caught by surprise are now extremely confident in predicting what will happen next. They couldn't foresee the vote, but they now know what is going to happen next.
That is the nature of many people in the stock market. They just can't allow themselves to say the dread words "I don't know". If you make your living forecasting, predicting and anticipating, you have no choice but to make a grand pronouncement about what is happening next. Not having an opinion is an admission of failure.
From a strategic standpoint is can be greatly beneficial to not formulate any strong opinions when the market is in a state of flux, like it is now; the best thing that you can do is put yourself in a position where you can react quickly as events unfold.
When we are caught by surprise like we were on Friday morning, that isn't such an easy thing. The market was shouting on Thursday night that Brexit has failed and it was all clear. Investors Business Daily even used the technical action as a basis for declaring that we were back in a full-fledged uptrend.
Seldom have so many people been so wrong about a binary event like a vote, which means many had to find ways to unwind positions quickly. That is big part of the reason we are seeing further downside this morning. The trapped bulls are overwhelming the typical dip buyers. We haven't seen this in a while, but we actually have bulls with too much long exposure. It has been the opposite for so long, that we don't even know what downside momentum is.
The key right now is to take your stops and make your portfolio adjustments so that you are in position to react quickly when new opportunities arise. You don't need to bother with all the grand predictions from the pundits. You simply need flexibility and the right mindset so that you can navigate.
If you had any long positions at all on Friday you suffered some hits, but if you move quickly to stem the bleeding it is actually quite an exciting market. Volatility like this leads to great trading opportunities. If we stay vigilant and are mentally prepared to trade, then we can do extremely well.
The most important thing you can do right now is to admit that you don't know how things will develop from here. Ignore the Pollyannas as well as the Cassandras. All you need to know is that flexible traders that react to changing conditions can do very well.
