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Trading Lessons

Trading BrExit - British Pound Plunges, FTSE Stock Futures Slump on LEAVE Shock Referendum Win

ElectionOracle / EU_Referendum Jun 24, 2016 - 03:14 AM GMT

By: Nadeem_Walayat

ElectionOracle

3am BST: With now 8 million votes counted, the headline of standings of near 50/50 masks the fact that as Jeremy Vine periodically keeps reminding BBC viewers that LEAVE are doing far better than their models suggested they should be, which if maintained implies that LEAVE are heading for referendum win, which compares against the situation of when the polls closed and the release of YouGov's polling for the day that gave REMAIN a commanding 4% lead over LEAVE, which even prompted Nigel Farage to effectively throw in the towel, apparently after talking to his friends in the city who assured him that REMAIN had won.


As things stand LEAVE leads REMAIN by 47,000 votes, with the LEAVE total now 4,011,321 against REMAIN on 3,964,4460, which puts LEAVE on 50.3% and REMAIN on 49.7%, so tight but not as tight as the headline figures suggest.

Trading BrExit

As I illustrated in yesterdays article and subsequent video that the markets such as stocks and sterling were erroneously discounting a REMAIN win which therefore offered a relatively good risk / reward opportunity to profit from a LEAVE result as a BrExit was my forecast conclusion.

23 Jun 2016 - Trading BrExit - Stocks, Bonds, Sterling, Opinion Polls, Bookmaker Odds and My Forecast

In terms of trading the markets, and despite the markets apparently no longer treating Brexit consequences seriously, a case of whatever happens it will be business as usual, nevertheless a BrExit outcome will result in sharp downwards swings for sterling and FTSE, even if the moves prove temporary as the politicians and central bank officials are likely to respond to both with market soothing words of nothing has really changed and of course the Bank of England releasing tens of billions of more market liquidity support.

So taking account of my forecast conclusion for a BrExit outcome then the current stock and forex markets are offering the potential for good risk vs reward short-term trades. However remember that volatility will be HIGH which means that even if one gets the direction right then if the stops are not set wide enough then traders can get stopped out of positions BEFORE the profit making moves take place. Or that of REMAIN does win then the market may gap well beyond ones stops resulting in larger losses than the potential that had been allowed for.

And so also are the bookmakers giving what appear to be good risk vs rewards odds of 4.3 to 1.

Friday definitely looks set to be a very interesting trading day, your analyst hoping he does not get stopped out of short side profit making moves!

Sterling

As I mentioned in my 1am update that the immediate market reaction was for sterling (GBP) to plunge from just over £/$1.50 to a low of 1.43 recovering to stand at 1.45. However since sterling took another dive, this time crucially dipping to just below £/$1.40 before recovering to currently stand at £/$ 1.42. The crucial point here is that my take profit was at £/$1.4040, so sterling is the first market to bank short profits on, as even if LEAVE wins, I don't expect sterling to move out of its 1.50 - 140 trading range.

Stocks

Well stocks volatility has been very high, and unfortunately that 10pm YouGov poll and REMAIN back slapping stopped me out of my FTSE short position as FTSE futures had soared from about 6330 to 6445 whilst my stop was at 6375. However subsequently a short from break below 6310 is currently sitting on a near 300 point profit at 6016 (100 point trailing stop), against an 85 point loss for the earlier short position, so as things stand the short FTSE is sitting on about 1/3rd of what would have been had YouGov not published its worthless opinion poll. Whilst Dow futures are down over 350 points this morning.

As a LEAVE outcome appears to become more certain than the FTSE should continue its slide, it's difficult to say how low it could go, so it's a case of keeping the trailing stop in place.

And here is a summary of the how things stood at the time the polls closed at 10pm Thursday in terms of EU Referendum expectations -

Financial Markets - REMAIN

Stocks and sterling had literally soared in advance of the voting day, effectively discounting a strong REMAIN victory i.e. between 55% and 60% for REMAIN.

Betting Markets - REMAIN

Similarly the bookmaker odds were discounting a large REMAIN victory, as evidenced by early Thursdays Betfair exchange market odds of LEAVE on 7.1 against REMAIN on 1.1, which converted into an implied probability of 90% for a REMAIN win. However on release of YouGov's 10pm poll effectively giving the EU Referendum to REMAN, Betfair odds shot higher to put LEAVE on 14! Which means £10 bet would have resulted in a £140 win! Better than any odds of the whole of this year, that until Thursday had not seen LEAVE odds widen to much over 6 at best.

My Forecast - LEAVE

Against this is my forecast as of 12th of June, a conclusion based on year long analysis that includes more than 120 articles and more than a dozen videos for a LEAVE victory on 51.3% against REMAIN on 48.7% (12th June 16 - EU Referendum Forecast)

Therefore as things stood just after the polls had closed then on one side of the scale were the bookmakers, financial markets and pollsters all signaling a REMAIN outcome. Whilst tipped up in the air was my forecast for a LEAVE win.

We'll, now those scales have tipped back firmly in favour of LEAVE as the actual votes are being counted. Whilst the count has some way to go. However as I was voicing Wednesday that MOMENTUM was in LEAVEd favour going into polling day which apparently did not register in any of the models that so called experts have been relying upon.

For more see this earlier video -

BrExit / LEAVE Set to Win EU Referendum

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2016 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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