In technical analysis, Island formations are the most powerful indicator in the book. With the Brexit polls over the weekend leaning heavily toward the “Stay” in the European Union, we saw indices worldwide gap open higher.
The DAX and EuroStoxx50 which led bourses lower have gapped open higher Monday morning and are trading over 3.5% higher. Both of these markets have Five-Day Island Bottoms in place. Initial objectives are DAX @ 10300 and EurosStoxx50 @ 3039. The ultimate objectives are DAX @ 10374.5 and EuroStoxx50 at 3089.
The British Pound is over 300 points higher this Monday morning. Bonds which have acted like a flight to quality product for weeks are quite a bit lower this Monday morning. ZBU is down over a full point and a half trading a 167 handle. The gold market has also acted as a flight to quality product. Gold is down over $10 this morning. The yen is down 30-40 and the euro ahead 50-60. Crude Oil is ahead almost a whole dollar. If the old correlation we are familiar with hold true-to-form this week, I will look for this serious pre-market bid on Wall Street to not only hold these gains, but add-on to these gains over the next two days.
There are an abundance of shorts across every index worldwide. The bears are some of the smartest names in the industry. Guess what? Some of the smartest names in the industry have been bearish for years. Some of the smartest money in the industry missed the greatest rally every on Wall Street.
In conclusion, the smart money will cover their shorts on Monday. The dumb money will cover their shorts on Tuesday. I am looking for a powerful two-day short-covering squeeze across all bourses.
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