Sunday, June 26, 2016

Expecting another drop in the markets after Brexit this week

It was quite a hectic trading week last week. Volatility continues to dominate the markets mainly due to the Brexit vote, so I'm expecting the markets to drop even further this upcoming trading week as the battle between the EU and Britain goes on. Can it go lower? Oh yes it can! This whole Brexit and political instability in Great Britain is to blame. It seems like no one can make up their minds! Once you think it's going in one direction it goes exactly the other way. I never would have thought to hear the abbreviation 'Regrexit' for instance. I won't elaborate on that now. But anyway, what does this mean for this upcoming trading week? The GBP is likely to depreciate even further against a basket of major other currencies, same goes for the EUR/USD, oil and major world markets (Asia, Europe and America). The age old question is by how much and when can we expect to see a rebound. As long as there is no clear direction in the markets I don't think any time soon. Therefore I'm trading with extreme caution this week, I have my eye on the GBP/USD, FTSE, EUR/USD, the oil trade (all short), and gold and VIX (all long). As always I'm looking for the perfect entry point for all trades. As of right now I don't hold any positions. I honestly did not expect a Brexit, in fact I even tweeted last Wednesday, right before the vote, that my prediction would be that Britain would remain in the EU. Evidently I wasn't the only one who was wrong and baffled by the results, the Dow Jones dropped more than 600 points last Friday, and other financial markets around the world plummeted. People were shocked by the outcome.

It's hard to stay optimistic when markets crash like this, but I think there are also huge trading opportunities in such a scenario. If the markets rebound then it's game-on! Not only there are great opportunities in the currency markets, but also the commodity and stock markets. Stocks that were heavily affected by the result of the Brexit may then be a lot cheaper, think of British automakers for instance. In the short term I don't think this chaos is far from over, mainly because I expect other countries in Europe wanting to hold referendums soon as well. A Frexit, Nexit next? Perhaps every country in Europe might want to hold their referendum, only causing more economic instability in the (financial) markets.

It's not only the Brexit that is causing turmoil in Europe, today Spain is holding elections as well, the outcome could spark even more volatility. Whatever the case is, chances that the markets rebound tomorrow and the rest of the week is slim to none in my opinion, especially now that there's so much going on. It definitely is not going to blow over in a week, that's why I believe there are a bunch of short opportunities, go short now while you can (in the right trades of course)! Eventually the markets will correct themselves, but until then it's trying to make money with short positions.

Limit your risk, and research trades well before you execute them.

Let's have a profitable week!

Disclaimer:

All opinions expressed, trade recommendations/advice on this website are solely of John van der Munnik and are not affiliated with any investment firm or any other organization. You should not make an investment only based using this website VDM Trading for your trading needs without seeking help from your own financial advisor.