Brexit Follow-Through

I've had some very surreal conversations about Brexit over the days since the unexpected vote to leave. One of the sane questions that I was asked was why the UK would delay invoking Article 50 to start the exit process, and the answer is obvious of course. France particularly is terrified that if there was to be a referendum in France then the result would be a 'Frexit', as the EU is even less popular in France than it is in the UK. France are therefore threatening to economically punish the UK harshly for leaving the EU, to discourage others, including themselves, from following the UK out. For the UK to invoke Article 50 before negotiating the broad strokes of an exit with that threat on the table, would be to allow France free rein to try to carry out that threat, while the UK had sacrificed the option of not leaving if the terms were too harsh.

There is increased uncertainty until Article 50 is invoked but this is a very uncertain process. It is not yet certain whether there will be another Brexit referendum, who would win that referendum if a vote is held, and what terms the UK would be leaving, in the event that the UK does actually leave. Only the hostility of the French seems assured at this stage, and with them this hostile, it's hard to see the UK being stupid enough to surrender any bargaining chips that they might very much need later to protect themselves.

Back to the markets and we are seeing the Brexit low on SPX taken out with some confidence today and at the time of writing SPX is close to the first alternate double top target that I gave on Friday morning at 1987. The other is a bit lower at 1980 and the 50% fib retracement of the move up from the February low is at 1965. Each of these areas has a shot at being an interim low for a rally in my view, but as the day looks firmly like trend down at the moment there may be no decent long opportunity today before the RTH close. SPX daily chart:

I posted three significant support trendlines on ES, NQ and TF on Friday morning, and the ES and NQ trendlines have now broken. TF support is being tested as I write. Very interestingly at the close on Friday I also had three strong support trendlines established at Friday's lows on SPX, NDX and RUT, all of which were obvious bull flag setups. I was saying in the member chart chat at theartofchart.net this morning that that meant one of two things. Firstly it might mean that the downtrend was about to end early, but more usually in these circumstances, it would mean that when these flags broke down then they would strongly support the topping patterns that were also breaking down. On SPX this means that the larger double top target at the 61.8% fib retracement area at 1930 may now be in range, though I'd be looking for decent support there if tested. SPX 60min chart:

This is angry tape so best to trade with caution. At some stage soon Stan and I are expecting another face ripper rally but unless we see some strong evidence of two way price action it's best to avoid all counter-trend trades on trend days. If SPX starts making short term highs and lows then we may well see a rally that may run 50+ handles.