Too Early to Buy

It is tempting to look at past precedents when looking at a huge gap down of 4% on the S&P as an automatic buy.  But in the past, when you had those huge gap downs of 3% or more, it was after a recent period of weakness, NOT strength.

We were just at an all time high in the ES futures overnight before the UK vote results came in.  That is not a situation where you are going to be able to pick up bargains on a 4% drop.  This muddies the current situation and there are almost no precedents where you are at near an all time high and suddenly gap down 4%.  My gut feel is that we will be trading lower in the coming days, testing the ES 1980-1990 area, an area of support during the chop in January and December 2015.  Considering that we are in a buyout blackout period, I do not expect much sustainable buying right away.

The market will have to find a level where dip buyers will come in aggressively.  Even though this Brexit news is way overblown, due to the weak fundamentals, I just don't think this is the level that buyers will make their stand.  Wait for sub 2000 before looking for short term buys.  At ES 2028, it is no man's land.  If we do get any kind of rally towards ES 2040-2050 area, I will be looking to either short or buy bonds if the 10 year gets towards 1.58-1.60%.  The bond bull market will continue.