Sentiment turned bullish yesterday, this was was prompted by a huge rally in stocks, the FTSE was up 3 percent. The “remain” lead was the catalyst, we can expect volatility to remain elevated in the next few days as we approach polling day.
Of course economic news is no longer relevant, most people are focussing on the referendum. Today George Soros warned that a Brexit vote would spark a “Black Friday” similar to Black Wednesday when the pound fell sharply and the UK dropped out of the ERM in 1992. “I would expect this devaluation to be bigger and also more disruptive than the 15% devaluation that occurred in September 1992” he said. “Too many believe that a vote to leave will have no effect on their personal financial positions. This is wishful thinking”.
Meanwhile we can expect more volatility today as Mario Draghi and Janet Yellen are due to speak. The FTSE rallied to 6236.5 and it’s not clear if this level marks the end of the rally. Wave ii (circle) has already gone further than expected and anything is possible from today to Friday depending on the result of the vote. I recommend to sit on the sidelines until Friday.
If we assume that 6236.5 is the top of wave ii (circle), the FTSE is at the start of a third of a third which is wave iii (circle) down inside wave 3. This is a very powerful move down, an initial target is 5700. But this forecast may change depending on who leads in the polls, after all the market will be driven by the polls until Thursday.
