UK Brexit-related assassination tanks Thursday gold trade

UK Brexit-related assassination tanks Thursday gold trade

Jo Cox Brexit-related murder in UK, HFTs, algo nervousness, options expiration all weigh down Friday stock trading. China hits Apple again. Black Swan events imminent?

Left: Late UK MP Jo Cox. Right: Pro-Brexit UK demonstrators. (Image collage by Terry Ponick. Jo Cox image via her Wikipedia entry, demonstrators via YouTube video screen grab.)

WASHINGTON, June 17, 2016 – It’s been one truly strange Wall Street week, as dueling narratives—federal government lies vs. political reality on the ground—are driving more traders to head for the exits this week. For the most part.

Thursday’s trading action saw markets tanking big-time, until, bizarrely, the tragic assassination of Jo Cox, a pro-EU Labor Party member of the UK Parliament and mother of two young children. She was suddenly attacked, shot and stabbed to death by an apparently deranged Brexit supporter outside a Birstall, West Yorkshire, library building where she was about to attend a “constituency surgery” (a British term for one-on-one or small town-hall-like meetings with local constituents).

Note to indefatigable U.S. firearms control and banning freaks: UK citizens have essentially been under a handgun ban for years. So how could Cox’s assassin have possibly owned such a weapon? (Likely response: Crickets.)

Perversely, Cox’s tragic and senseless murder seemed to kick Wall Street’s algos and HFT computer trading programs instantaneously into high gear on the buy-side—a rapid-fire, mindless reaction to dubious reports that this shocking UK murder would derail increasingly powerful voter support for a British exit from the European Union, aka, the “Brexit.”

Severely pressured stocks in nearly all sectors suddenly rebounded violently in late Thursday trading, leading averages to the first positive close in several trading days. Meanwhile, gold and silver, which had been soaring on Brexit fears, were simply pancaked, with large Thursday gains in precious metals ETFs ended the day bleeding copious amounts of red ink. The computers apparently figured that with Brexit fears so neatly taken off the table, it was safe for bulls to return. Likewise aiding in the abrupt turnaround was at least a modest short squeeze, as short-sellers were suddenly eager to take off their negative bets.

Friday morning, however, still finds the Brexit movement ahead in UK polls, so Wall Street has decided to return to its losing ways, with the DJI and S&P 500 off 0.50 percent and the more volatile NASDAQ off nearly a full percentage point as of 1 p.m. EDT. Gold is still slightly up after a recovery opening this morning, while silver, also initially up, now seems bent on staging another retreat. It’s possible the short-sellers have returned in force, betting, as they have been doing, on a big market crash should the Brexit win in next week’s UK public referendum.

Friday action is further complicated by options expiration today. This usually makes for a more bullish trade, which we likely saw at the opening bell. Another complication: The Beijing city government has suddenly decided for dubious but clearly protectionist reasons to ban sales of the iPhone 6 model, apparently to force greater sales of a Chinese competitor. (Which probably stole Apple technology and design features anyway.) Apple’s shares (symbol AAPL) are getting hit Friday as a result, which, in turn, is hurting technology stocks, ETFs and indexes. Fed interest rate dithering doesn’t help, either. And what can we say about Philadelphia’s brand-new and beyond-stupid soft-drink tax?

Ergo, for a variety of reasons, some of which we’ve just noted, it looks like the bears have again decided to take control of Wall Street’s fortunes. Trading is getting more volatile by the day, so conservative investors are backing off positions in advance of what could be a big Black Swan event. It’s a nasty end to a nasty and completely illogical week of trading. Markets are pretty oversold, to be sure. But that doesn’t automatically guarantee a swell reaction rally.

Trading diary

We were hammered Thursday in our large Teekay Tankers (TNK) and Allergan Preferred A (AGN/PRA) positions, though both recovered slightly near the close. Oil has been getting taken to the woodshed this week, likely backing off from last week’s highs, just because. Today, however, oil is sharply up as of 1 p.m. EDT, with WTI currently up $1.30 bbl. to stand at $47.52. Brent crude and natural gas are also up nicely, too, all of which is helping TNK out a bit today.

We’re basically sitting tight today, having upped our gold and silver ETF positions in SGOL and SIVR respectively. After a nice initial bid this morning, however, both are retreating. But we’re using both positions (as well as a few hundred shares of SDS, the double-short S&P 500 ETF) to hedge our financials-heavy current portfolio, which could take some nasty, albeit short-term damage next week if the Brexit really does pass.

Aside from little tune-ups like these, however, the market promises to be a very, very treacherous place next week as we await the UK vote and whatever else is out there. So we’re going to make our portfolios as comfy as we can and sit most of next week out. Too dangerous for us little guys.

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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17