June was a very tricky month, yet we managed to rack up a gain of 17.21% versus the SPX, which was virtually unchanged. But, that description doesn’t due the month justice, as it contained both the biggest 2-day drop and the biggest 3-day bounce back in years.
The reason for all the excitement was, of course, the British referendum to exit the EU. We were fortunate enough to have anticipated the extent of the sell off (within 9 points), and the events that would signal the subsequent rebound.
Our forecast the day before the vote was known, as posted in The Eve of Destruction:
Our big red target near the intersection of the .618 Fib line and the falling yellow channel would put SPX at 2010-2020, a modest 3.6% decline. An overshoot to test 2000 is also a good possibility.
The actual extent of the sell-off, with a low of 1991:The plunge went even further below the yellow channel top than expected, exceeding our downside target by 9 points. The rebound was even more vigorous than anticipated.
All in all, the dip and recovery provided a nice bumper to an already successful month.The monthly average for pebblewriter.com dips slightly to 17.70%, and the monthly average for the S&P 500 increases slightly to 0.16%. That’s the good news. The bad news is that SPX recently pushed above 2134 to set new all-time highs.
Never mind that the rally was the result of expectations for expanded QQE by the BoJ, and the usual intraday ramping of CL and USDJPY. And, never mind that it occurred in spite of disappointing economic and earnings data. The reality is that the chart and harmonic patterns will become even trickier now that SPX has topped a key Fibonacci extension level. As always, I’ll do my best to stay ahead of the game.
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