Post-Brexit

Last week I posted a chart of the DJIA post-“Brexit.” Here’s where the DJIA was:

Here’s where the DJIA is now:

This was one of the wildest weeks I’ve ever seen in the market. I could not have imagined the DJIA could move so fast in both directions in only five trading days. The “V” move up from 17000 was remarkable.

If the DJIA fails to break above 18,000 in the next few weeks, I expect the stock market to move erratically in the search for price discovery and thus for volatility to increase.

With increased volatility comes more expensive option premiums.  

You can’t buy insurance when the house is already on fire.

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When the VIX, the CBOE volatility index, spiked up last Monday, gold and silver surged higher, as did the $USD in relation to the falling British Pound and global stock markets.  

The big moves up in gold and silver are telling in relation to the current market environment. Gold and silver continued their move upward as the $USD and the VIX dramatically fell while the stock indices recovered throughout last week.

Either gold and silver are foreshadowing more future volatility, or gold and silver are set for a big move lower.

Both scenarios are realistic, but in light of inflated currencies worldwide courtesy of low interest rates+QE, and a plummeting British Pound, its seems prudent to bet on volatility catching up to gold and silver’s price action, not the metals moving down.

***It's impossible to know if any of these trends will continue, but building low-risk, high-reward trading ideas around a general thesis with confirming price movements is an approach I subscribe to.