Regardless the outcome of the Brexit vote, the European Union is failing,
according to newsletter writer and technical analyst Clive Maund. The
consequences will likely include a soaring dollar and a falling euro, market
volatility and a slide in the prices of some commodities, but Maund has
identified ways investors can profit from the chaos.
With the Brexit vote underway, we can expect to see big volatility in
markets immediately following it, and possibly even before it, if the market
thinks it has got wind of the outcome ahead of the final count.
If Britain votes to leave the European Union, the presumption is that the
euro will drop hard, because this would be a big prominent nail in the coffin
of the failing Union. And because the euro comprises about 57% of the dollar
index, we can expect it to soar.
If Britain votes to stay in, the outcome is less clear, since Britain
staying in will not solve the mounting problems of the EU.
The European Union is now doomed to fail and eventually break up. If
Britain does vote to leave, then other disenchanted countries can be expected
to follow suit in time, and this rotten, self-serving organization will
slowly lose its power base. If Britain stays, then increasing polarization
and the rise of the extreme right can be expected to get the job done.
A wild card during these uncertain times is Europe deliberately setting
out to provoke Russia at Washington's bidding by imposing sanctions on it,
permitting the stationing of missile batteries along its borders and staging
military exercises, etc. European leaders need to remember that Russia is a
lot closer to Europe than the U.S., and pushed to the limit or beyond, Russia
has the capacity to turn most of the citizens of Europe into pieces of
smoking charcoal. You would think that they would have learnt the lessons of
World Wars I and II but, sadly, they have not, and seem hell-bent on inviting
catastrophe. The military-industrial complex and the Neocons safely nestled
in their bunkers in Colorado and Nevada might find this all very
entertaining, but the citizens of Europe are the ones who are going to pay
the biggest price if things get out of hand.
The focus of this article is not a geopolitical rant, but rather to
consider why the dollar is likely to rally going forward, and to look at a
way or ways to profit from it.
As noted above, if Britain votes to leave the EU, the writing will be on
the wall for this doomed organization and it will disintegrate faster than if
Britain votes to stay in. The euro should, therefore, tumble and the dollar,
in consequence, rally. If Britain votes to stay in, the euro will probably
stage a relief rally, but it is likely to be short-lived because of the
ongoing, deepening crisis within the EU. The dollar should turn up again
after an initial drop, with the dead-end desperation of negative interest
rates in Europe helping to sluice money out of the euro and into the dollar.
While it is impossible to determine the outcome of the Brexit vote in
advance, we can at least attempt to draw some conclusions from market
statistics. As we will see they suggest that the dollar is more likely to
rally after the vote than drop.
On the 3-year chart for the U.S. dollar index, we can see that it has
stabilized above strong support toward the lower boundary of a giant
rectangular trading range, with a potential base pattern forming in recent
months.
On its 6-month chart it looks like the dollar index may be working on
completing the Right Shoulder of a Head-and-Shoulders bottom. If so, a
sizeable rally is brewing.
The latest U.S. dollar hedgers chart makes for interesting viewing. This
chart shows that Hedgers' positions have been steadily improving since the
dollar peak over a year ago, following the strong runup, and they are now
closing in on being outright bullish-and we should note that the dollar
doesn't have to wait for that to happen to start rallying.
Chart courtesy of www.sentimentrader.com
An important factor suggesting that the dollar is set to advance is the
latest gold COT, whose readings are at record extremes, which makes a decline
in the gold price very likely soon, and clearly that is likely to coincide
with a dollar rally.
Apart from the failing euro, why should the dollar rally after suffering
so much abuse at the hands of the Fed and big banks in recent years? Important
reasons are not hard to find. In the first place, the Fed may have been
abusing the dollar, but most of the rest of the world has now followed suit,
with many Central Banks around the world striving to outdo the Fed. The
European Union and Japan, in particular, have evolved into masters of
outdoing the Fed.
Another big reason is that global markets are now in the late bubble stage
(and this includes bonds, stocks and real estate), and are increasingly
unstable, so that various "black swan" events could trigger a
general crash, like the Fed stubbornly raising rates later this year in the
face of an already crumbling economy.
Finally, like it or not, the U.S. dollar remains the global reserve
currency, and U.S. elites intend to keep in that way, which is why Russia,
which has been teaming up with China to circumvent using the dollar, is
finding itself under an economic and military siege, subjected to sanctions
on trumped up charges, and being encircled by military hardware.
If the dollar is set to rally, then dollar bull ETFs like the two shown
below should rally. The gains in these will not be big as they are not
leveraged, but at least they will do more than preserve capital, and if
markets crash they will prove to be a good bolthole.
If the dollar rallies after the vote, then commodities will drop, and
gold, silver and oil look particularly vulnerable over an intermediate time
frame. On the 6-month chart for Light Crude we can see that it has already
broken down a bearish Rising Wedge uptrend that lasted from February, and
looks set to drop away.
If Britain votes to leave the EU, the elites, who control global stock
markets with their vast wealth, will be roiled and we can expect a big drop
in world markets to occur, which the U.S. market is certainly in position
for, although we should be clear that this could break either way. Having
said that, the S&P 500 index chart, shown below, does present a dangerous
picture-from this position it could easily crash the support shown and
plunge. . .
A couple of bearish looking candles with rather large "upper
shadows" have appeared on the S&P 500 index chart in recent days,
two "shooting stars." Although not conclusive evidence, these
usually lead to a drop. . .
Whichever way the vote goes, one thing is for sure, and that is that we
are going to see some wild swings in markets once the results are known.
Disclosures:
1) Statements and opinions expressed are the opinions of Clive Maund and not
of Streetwise Reports or its officers. Clive Maund is wholly responsible for
the validity of the statements. Streetwise Reports was not involved in any
aspect of the content preparation or editing so the author could speak
independently about the sector. Clive Maund was not paid by Streetwise
Reports LLC for this article. Streetwise Reports was not paid by the author
to publish or syndicate this article.
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Charts courtesy of Clive Maund