TRADING THE WEEK: Traders Eye Post-Brexit Rally

Terry Flanagan

July 4 week may not be so slow after all.

In what would normally be a quiet time in the markets due to traders being off the desk, traders expect Brexit aftereffects to continue into the holiday-shortened week.

“I would expect significant action again,” said a proprietary trader. June 27-July 1 “was one of the craziest weeks I’ve seen in years. I think the intensity of the rally following Brexit took everyone by surprise.”

“There is a lot of institutional money suffering from instant remorse if they were selling stocks on Monday or Tuesday,” which were the second and third U.S. trading days since the U.K. voted to leave the European Union, the trader added. “Those same institutions who dumped in fear on Monday morning will be looking to reload on any market weakness next week. This could actually propel us to new all time highs in the S&P.”

Volume traded on U.S. equity exchanges averaged 10.3 billion shares per day for the week ended July 1, compared with 7 billion shares per day in the previous week, and 6.3 billion shares in the week ended June 26, 2015, which was the last full week before July 4 last year.

The Brexit vote triggered an immediate market decline on Friday June 24, which carried over into Monday June 27. But the losses were clawed back and then some over the subsequent three days, amid robust trading.

“The ‘buy the dip’ mentality of this market, which has been the story for the past seven years, was reinforced once again as everyone buying on Monday morning are now sitting on an instant windfall,” the trader said. “Shorts got their faces ripped off again, reinforcing the theme that this market is nearly impossible to short.”

As Brexit and the implications of the move took center stage as a market influence, the Federal Reserve receded to the background, at least in the short term. The FOMC will meet later this month, but market expectations are that the Fed is on hold for the time being.

Traders noted that the market functioning and infrastructure — oft-maligned for a handful of well-publicized technology glitches over the past several years — overall operated seamlessly through the recent turbulence.    

“We saw periods of volatility and high market volumes in Europe and the U.S.,” said a top executive at a leading agency broker. “U.S. markets were very resilient — stable, reliable and orderly. We had the extra capacity and we stood up to take on the additional flow.”

This Week’s U.S. Economic Indicators of Interest:

Monday July 4
Tuesday Factory Orders
Wednesday Trade Deficit

Markit Services PMI

FOMC Minutes

Thursday Weekly Jobless Claims
ADP Employment
Friday Nonfarm Payrolls

Unemployment Rate

Average Hourly Earnings


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