Global equities were mostly weaker overnight but Chinese markets once again managed to trade higher. Surprisingly equities in general are not falling as sharply as action in the Yen and Treasuries would seem to suggest is necessary given the fear and loathing toward all things British. However, seeing global interest rates streaking toward zero or in some cases negative rates should provide some flow of capital into stocks. In other words, if there is no return in fixed income instruments, investors might as well move into equities in hopes of a better return. In the short term fear of the unknown is likely to dominate and while stocks might avoid severe declines the bear camp remains in control.
S&P 500: As suggested already the magnitude of losses in the S&P have been less than might have been expected when one considers the breadth of the negative headline flows of the past several sessions. However, the path of least resistance is pointing downward with a fresh lower low on the charts and mostly negative headline news flow. Ideas that the world is headed back to recession are being floated and in some cases the soaring price action in Treasuries seems to give credence to economic disaster. On the other hand the S&P apparently isn’t prone to panic in the current situation and near term support of 2064 might hold. The next lower support point in the September E-Mini S&P is seen down at 2056.50.
Other US Indexes: As suggested in other coverage today the magnitude of the declines in many equity market measures is limited and that in of itself downgrades the severity of the crisis facing all markets. However, lingering weakness in energy prices, fear of the unknown and assumptions of the worst case from the UK exit should leave the bias in the Mini-Dow pointing downward. Initial support is seen down at 17,646 and then not until the 17,557 level. In the September Mini-Nasdaq initial support is seen at the overnight or early low of 4368.25 and then not until the 4361.25 level.
TODAY’S MARKET IDEAS: We think the crisis is potentially capable of hitting a temporary wall later today as the failure to see US equity markets follow through sharply lower could put some sense in the marketplace. If the UK economy is threatened with slowing because of its action, then a 35 year low in the Pound should begin to stimulate UK exports, keep holidays at home and it has already extracted easing from the BOE. Therefore we suggest that equities could find a bottom after more downside action to start.