{"id":4518,"date":"2016-06-28T08:14:05","date_gmt":"2016-06-28T12:14:05","guid":{"rendered":"http:\/\/www.morpheustrading.com\/blog\/?p=4518"},"modified":"2022-04-06T15:05:01","modified_gmt":"2022-04-06T19:05:01","slug":"brexit-stock-market-support","status":"publish","type":"post","link":"https:\/\/morpheustrading.com\/blog\/brexit-stock-market-support\/","title":{"rendered":"Post-Brexit: How Far Will Stocks Fall Before Bulls Return?"},"content":{"rendered":"<p><img loading=\"lazy\" decoding=\"async\" class=\"alignright size-medium wp-image-4519\" src=\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2016\/06\/brexit-300x174.jpg\" alt=\"Brexit market support\" width=\"300\" height=\"174\" title=\"\" srcset=\"https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2016\/06\/brexit-300x174.jpg 300w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2016\/06\/brexit-110x64.jpg 110w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2016\/06\/brexit-768x445.jpg 768w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2016\/06\/brexit-1024x593.jpg 1024w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/>With global stock markets getting hit pretty hard\u00a0in reaction to Britain&#8217;s decision to exit the European Union (&#8220;Brexit&#8221;), it&#8217;s easy to panic over how much stocks have recently fallen.<\/p>\n<p>However, in times like these, it&#8217;s crucial to rely on\u00a0<strong>&#8220;no nonsense&#8221; technical analysis<\/strong> to maintain an objective view to determine just how far stocks may fall before buyers step back in.<\/p>\n<p><em>Continue reading<\/em> to see a calm, clear picture of the next major support levels of\u00a0the S&amp;P 500, NASDAQ Composite, and small-cap Russell 2000 indices, as well as some crucial advice on\u00a0how to trade this post-Brexit market in the near-term.<\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">TABLE OF CONTENTS<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/morpheustrading.com\/blog\/brexit-stock-market-support\/#High_Volatility_Less_Trend_More_Risk\" >High Volatility = Less Trend &amp; More Risk<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/morpheustrading.com\/blog\/brexit-stock-market-support\/#React_Dont_Predict\" >React, Don&#8217;t Predict<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/morpheustrading.com\/blog\/brexit-stock-market-support\/#S_P_500_Index\" >S&amp;P 500 Index<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/morpheustrading.com\/blog\/brexit-stock-market-support\/#NASDAQ_Composite_Index\" >NASDAQ Composite Index<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/morpheustrading.com\/blog\/brexit-stock-market-support\/#Russell_2000_Index\" >Russell 2000 Index<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/morpheustrading.com\/blog\/brexit-stock-market-support\/#Not_The_First_Nor_The_Last\" >Not The First, Nor The Last<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/morpheustrading.com\/blog\/brexit-stock-market-support\/#Talking_Heads_Suck_though_the_band_is_great\" >Talking Heads Suck\u00a0(though the band is great)<\/a><\/li><\/ul><\/nav><\/div>\n<h3><span class=\"ez-toc-section\" id=\"High_Volatility_Less_Trend_More_Risk\"><\/span><strong>High Volatility = Less Trend &amp; More Risk<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Before reviewing the key charts,\u00a0we would first like you to understand how the recent increase in stock market\u00a0volatility affects swing traders.<\/p>\n<p>When volatility picks up, as it has over the past few weeks (especially last Friday)<span class=\"__postbox-detected-content __postbox-detected-date\">,<\/span> the price action becomes less reliable, thereby making it very difficult to set tight stops. In volatile markets, the odds of opening &#8220;gap downs&#8221; increase as well.<\/p>\n<p>Generally speaking, since the short-term trend is no longer in place, the potential for gains on new trades will decrease. Accordingly, the odds of getting stopped out will increase, which means the odds of producing a solid gain will decrease. This is what we call a very low reward-to-risk environment. The potential for reward is very little versus the risk.<\/p>\n<p>In a bullish market, volatility remains low, and price action is much more reliable. This allows swing traders to set tight protective stops.<\/p>\n<p>As such, the odds of getting stopped out decrease, while the odds of producing an above average gain increase. This is known a positive reward-to-risk environment. In such environments, the\u00a0potential reward far outweighs the risk.<\/p>\n<p>Triggered by last\u00a0<span class=\"__postbox-detected-content __postbox-detected-date\">Friday<\/span>&#8216;s post-Brexit price\u00a0action, current stock market volatility is high.<\/p>\n<p>The S&amp;P 500, NASDAQ Composite, and Russell 2000 all closed last week with\u00a0an ugly, wide red bar (or candlestick), which suggests these charts will need <em>at least<\/em> a week or two of indecisive, choppy price action before they can return to trend mode.<\/p>\n<p>Therefore, momentum swing traders should <strong>be extremely selective and use caution<\/strong> with new trade entries (both long and short) until the market&#8217;s next trend becomes established.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"React_Dont_Predict\"><\/span><strong>React, Don&#8217;t Predict<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>On the charts of major indices below, we show you long-term\u00a0monthly charts for overall &#8220;big picture&#8221; perspective, followed by shorter-term weekly charts for close up views of current price action.<\/p>\n<p>We do not like to spend time trying to <em>predict<\/em> where the market will go; rather, we\u00a0show these technical\u00a0charts simply to give you an idea of where key support levels exist. In turn, these support levels may attract buyers if\/when the main stock market indexes drop to those levels.<\/p>\n<p>Nevertheless, don&#8217;t forget that <strong>anything can and does\u00a0happen<\/strong> on Wall Street, which is why we never try to predict anything. Rather, our job as technical swing traders is merely to <em>react<\/em> to the price action in front of us.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"S_P_500_Index\"><\/span><strong>S&amp;P 500 Index<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The monthly chart of the benchmark S&amp;P 500 shows the index is still trading above its\u00a0<span class=\"__postbox-detected-content __postbox-detected-date\"><span class=\"__postbox-detected-content __postbox-detected-date\">10-month<\/span><\/span> moving average, a key level of long-term support that is similar to the 200-day moving average on a daily chart.<\/p>\n<p>This is positive because, depending on how the action plays out, the long-term\u00a0uptrend line (purple line) may provide support on a test.<\/p>\n<p>At the very least, we expect\u00a0the S&amp;P to form a &#8220;higher low&#8221; on the monthly chart. Take a look:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/%7Erick\/\/charts\/2014\/160625SPX.png\" alt=\"S&amp;P 500 Monthly\" title=\"\"><\/p>\n<p>Drilling down to the\u00a0weekly chart timeframe below, we get a better idea of how the market&#8217;s price action could play out over the next several weeks.<\/p>\n<p>Look for the S&amp;P to form another base of consolidation above its\u00a0<span class=\"__postbox-detected-content __postbox-detected-date\"><span class=\"__postbox-detected-content __postbox-detected-date\">40-week<\/span><\/span>\u00a0moving average (similar to 200-day moving average), with a few &#8220;undercuts&#8221; as ideal action:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/%7Erick\/\/charts\/2014\/160625SPX2.png\" alt=\"S&amp;P 500 weekly \" title=\"\"><\/p>\n<h3><span class=\"ez-toc-section\" id=\"NASDAQ_Composite_Index\"><\/span><strong>NASDAQ Composite Index<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Unlike the S&amp;P 500, the NASDAQ is already trading below its 10-month moving average,\u00a0<em>but<\/em> the index is still trading above its long-term uptrend line:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/%7Erick\/\/charts\/2014\/160625COMPX.png\" alt=\"NASDAQ Monthly\" title=\"\"><\/p>\n<p>Next is the weekly chart of the NASDAQ, which shows the price action could play out in a similar manner to the S&amp;P 500 in the coming weeks:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/%7Erick\/\/charts\/2014\/160625COMPX2.png\" alt=\"NASDAQ weekly\" title=\"\"><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Russell_2000_Index\"><\/span><strong>Russell 2000 Index<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Although the blue chip Dow Jones Industrial Average is a more well-known index, the health of small caps is a better indicator of trend for the type of momentum growth stocks that we trade in our nightly swing trading <a href=\"https:\/\/www.morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener\">newsletter<\/a>.<\/p>\n<p>Since it exhibited relative weakness to the S&amp;P 500 throughout much of 2015, the Russell 2000 is already trading much closer to pivotal support of its long-term uptrend line on the monthly chart.<\/p>\n<p>However, with\u00a0the small-cap index, there is also a shorter-term downtrend line that was cleared last month.<\/p>\n<p>This prior level of resistance should now act as support on a pullback. to act as support on a pullback. We call this\u00a0a &#8220;backside test of the downtrend line.&#8221;<\/p>\n<p>Furthermore, even if the 10-month moving average does not hold as support, there is quite a bit of support just below the 1,100 level.<\/p>\n<p>All these elements can be seen on the monthly chart below:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/%7Erick\/\/charts\/2014\/160625RUT.png\" alt=\"Russell Monthly\" title=\"\"><\/p>\n<p>Finally, take a look at the\u00a0weekly chart of the Russell, which details all the support levels located around 1,080 to 1,100:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/%7Erick\/\/charts\/2014\/160625RUT2.png\" alt=\"Russell weekly\" title=\"\"><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Not_The_First_Nor_The_Last\"><\/span><strong>Not The First, Nor The Last<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>With the major news outlets playing off the drama of Brexit and injecting panic into the hearts of investors, it&#8217;s easy to get suckered into believing the sky is falling.<\/p>\n<p>But please remember this is not the first time (nor will it be the last) that surprising and unexpected geopolitical news created a short-term panic in the markets.<\/p>\n<p>Yet, every time\u00a0the\u00a0knee-jerk panic selling fades way, excellent new opportunities for profitable swing trading are eventually once again created.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Talking_Heads_Suck_though_the_band_is_great\"><\/span><strong>Talking Heads Suck\u00a0(though the band is great)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>As always, the key to consistent, long-term trading profitability is simply to\u00a0<strong>plan your trades and trade your plan<\/strong>,\u00a0<em>without<\/em> getting distracted by the financial &#8220;gurus&#8221; and talking heads of mass media (turning off the TV helps in this regard).<\/p>\n<p>Above all, remember your job as a trader is <em>not<\/em> to predict where stocks will go. Instead,\u00a0trade &#8220;in the now&#8221; by merely reacting to what you see in front of you every day.<\/p>\n<p><strong>Trading what you see, <em>not<\/em> what you think<\/strong> is the key to mental clarity, calmness, and consistent trading profits.<\/p>\n<p><em><a href=\"https:\/\/www.morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener\"><strong>Sign up now<\/strong><\/a> for your Wagner Daily subscription to receive our top nightly ETF and stock picks, objective technical analysis, and educational commentary.<\/em><\/p>\n<div class=\"cfmonitor\" style=\"padding-top: 30px;\"><center><script src=\"\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js\" async=\"\"><\/script><!-- Footer of content - Large --> <ins class=\"adsbygoogle\" style=\"display: inline-block; width: 336px; height: 280px;\" data-ad-client=\"ca-pub-7565144363001883\" data-ad-slot=\"6017996961\"><\/ins><script>\/\/ <![CDATA[\n(adsbygoogle = window.adsbygoogle || []).push({});\n\/\/ ]]><\/script><\/center><\/div>\n","protected":false},"excerpt":{"rendered":"<p>With global stock markets getting hit pretty hard\u00a0in reaction to Britain&#8217;s decision to exit the European Union (&#8220;Brexit&#8221;), it&#8217;s easy to panic over how much stocks have recently fallen. However, in times like these, it&#8217;s crucial to rely on\u00a0&#8220;no nonsense&#8221; technical analysis to maintain an objective view to determine just how far stocks may fall [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[3],"tags":[],"class_list":["post-4518","post","type-post","status-publish","format-standard","hentry","category-stock-trading-strategy"],"_links":{"self":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/4518","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/comments?post=4518"}],"version-history":[{"count":1,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/4518\/revisions"}],"predecessor-version":[{"id":11260,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/4518\/revisions\/11260"}],"wp:attachment":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/media?parent=4518"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/categories?post=4518"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/tags?post=4518"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}