Brexit: Stock Market Collapse, Flash Crash Or Buying Opportunity?

wall of worryTaki Tsaklanos:  Unsurprisingly, stock markets have crashed since the Brexit news hit the wires. Stock markets all over the world are deep in red, between 3 and 9% (with the Nikkei deepest in red), market volatility has spiked.

That brings up the question whether this is a flash crash, similar to August 24th 2015, the start of a stock market collapse or an incredible buying opportunity?

Let’s try to answer that question in an objective way. The only way to do so it to turn to the charts. One thing NOT to do is to turn to media or news as they are definitely doomsday-ish.

The German stock market index, DAX, tells us that 9000 points is the line in the sand. A structural close below 9000 points, defined as +5 consecutive closing prices, would be extremely concerning for stock bulls; that could indicate the start of a collapse.

So far, we have seen a sharp decline followed by a moderate recovery, which, so far, points to a flash crash scenario.

DAX_Brexit_June_2016

The U.S. market looks slightly different.

The S&P 500 crashed to 2000 points, which is not coincidentally the first major support line, as indicated on the chart.

If that does not hold, then there is major support at 1800 points. Until the S&P 500 has closed 5 consecutive days below 1800 points, there is no reason to panic.

S&P500_Brexit_June_2016

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