Brexit - Prepare for Volatility
Wall Street is a very emotional creature and the only thing it hates worse than “bad” news is being surprised by “bad” news.
Yesterday the United Kingdom voted to leave the European Union – shocking the expectations of many, including Wall Street.
Today the stock market is expected to go through a bloodbath of panic as nervous investors pull out of the market.
For those of us who trade according to the Stock Market Outsider strategies, then we are in for a real treat.
We are very well prepared for these moments, our portfolios are hedged with bearish positions, and we have readily investable cash that we had been compounding throughout these bullish years.
Here’s my thoughts of how the next few days will go…
Today the market will open with huge losses as people blindly unload their portfolios. This is a perfect time to grab good deals on either individual stocks or bullish ETFs.
Assuming the market does not hit its 7% trigger within an hour or so after opening, I’d expect investors to become more comfortable and the overall markets to rise.
I’d then expect the market to decline afterwards as people begin taking short-term profits and as the market squeezes out those nervous investors who did not sell upon opening.
Having said that, if you have the money to spare, I would not recommend investing your entire portfolio today.
Although there will be great deals to be had, there is a strong possibility the market will further decline next week – especially considering that investor debt is at one of the highest points ever. Expect a lot of people to be forced out of their portfolios next week through margin calls.
Remember, a deal only looks good when compared against the recent past. There is a chance that the high P/E levels we have seen in recent years will not be the norm going forward.
Keep your head clear and invest rationally. The market will survive and we will be the profiteers.
See you on the other side.