Intraday Rally In Stocks As The Odds Of A No-deal Brexit Increased

Commenting on today’s trading focusing on the big intraday rally, Gorilla Trades strategist Ken Berman said:

Intraday Rally

Tumisu / Pixabay

Today’s rally was much more promising than Monday’s bounce, and should the key sectors continue to advance in a concerted fashion, it could be the start of a push towards the July highs.  While Treasury yields declined yet again and the odds of a no-deal Brexit increased, we saw a broad intraday rally in stocks, and since small-caps also bounced off yesterday’s multi-months lows, bulls could be in for a treat in the second half of the week.

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The major indices all closed higher despite a bearish start to the day, with all of the key risk on sectors finishing the session in the green, in the face of the mixed catalysts. The Dow was up 258 or 1.0%, to 26,036, the Nasdaq gained 30, or 0.4%, to7,857, while the S&P 500 rose by 19, or 0.7%, to 2,888. Advancing issues outnumbered decliners by s more than 3-to-1 ratio on the NYSE, where volume was below average again.

Intraday rally lifts most stocks

Investors were glad to see that the Dow and the Russell 2000 led today intraday rally, since the industrial average and the small-cap index were both relatively weak throughout August. The Russell avoided a scary technical breakdown today, and although market internals are still weak, a sustained rally in small-caps could boost the broader market too. The materials sector, and energy stocks, in particular, had a very strong session, as the price of oil hit a one-week high, while industrials, services, and consumer goods also benefited from the positive shift in investor sentiment.

U.K. Prime Minister Boris Johnson announced today that the British Parliament will likely only reopen on October 14 following the summer break The unexpected suspension further increases the probability of a no-deal Brexit, since it would leave legislators only three weeks until the October 31 Brexit deadline. Opposition parties have been planning to form a temporary coalition to block a no-deal Brexit ahead of the deadline, and today’s announcement could be the Prime Minister’s answer to the threat. In any case, the Great British Pound got hit hard today due to the controversy, and September could be yet another highly volatile month for British assets.

Despite intraday rally Brexit and Italy unnerve investors

Besides the Brexit saga, the Italian political crisis also took a rather surprising turn today, as a new coalition of parties agreed to form a government without the populist Lega party, avoiding a snap election. The deal will likely help in stabilizing the battered European markets, and it could also trigger a shift away from the recently favored safe-haven assets, such as Treasuries, the Japanese yen, and gold. In light of their apparent relative strength, U.S. stocks might be among the most important beneficiaries of such a shift.

Economic numbers

The second reading of the second-quarter GDP print will highlight tomorrow’s session, in terms of economic releases, and analysts expect a small negative revision to 2.0% compared to the originally reported 2.1% figure. Since the Dollar Index is just below its recent multi-year high, a positive surprise could trigger a breakout, which would have affect stocks across the board. Wholesale inventories, pending home sales, and the weekly new jobless claims number will also be out tomorrow, while the GDP readings from the Eurozone will also be closely watched by investors in pre-market trading. Stay tuned!

If you wish to speak with Mr. Berman, please contact me at devanson@comcast.net or 215.460.8149.



About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver