Politics Killed The Stock Market Rally

One of the big obvious pluses of the Referendum Vote on June 23, when we discovered that the world had not ended, was the way that the stock market soared and the Pound plummeted. At least until multi nationals started profiteering from the fall in our currency via Marmitegate, stock market investors were able to pile into Dollar earning resources companies and reap a rich reward. For instance, both Randgold Resources (RRS) and Fresnillo (FRES), gold and silver miners respectively, saw their shares rise by almost 25% on the day after the momentous vote.

The irony now, helped along by the High Court’s referral of the Referendum vote to Parliament, is that the FTSE 100 may begin the opposite journey to the downside. Indeed, we already see it some 400 points off its peak at 7,100, with the chance being that political uncertainty and a rebound in the UK currency unravelling the rally in a manner that the Grand Old Duke of York might be familiar with. Throw in a Trump victory in the US, and a possible General Election over here, and it could be a rather unfestive run up to Christmas 2016.

It would appear that we have entered a vortex of uncertainty. At best it will mean traders and investors decide to sit on their hands. But it could easily mean a rush for the exit, to take away the 1,000 points of post Referendum gains. Those who bemoaned the weakness of Sterling might expect to see a return to $1.30 and 85p on the Euro, as “happy medium” levels without the threat of a “Hard Brexit.”

As far as the stocks they have so far exited from we saw Oil & Gas companies lead the way down. They have already been hit by the fall in Crude Oil, already some $10 off its October peak, as the market frets over the likely inability of OPEC to engineer a deal on production for its November 30 meeting. We enjoyed a phoney rally towards $52 as it was temporarily believed that Russia partnered with Saudi Arabia could stabilise production. However, this already appears to be something of a fantasy. A drift for the commodity and the likes of BP (BP.) and Tullow Oil (TLW) looks to be on the cards for the rest of this month. Just in case you thought that leading mining stocks like BHP Billiton (BLT) may be immune from this malaise, it should be noted that nearly a third of its profits are derived from its oil division.

But even as the stock market fell this week, with the FTSE 100 closing in on 6,700, there were winners, helped along by the surprise twist in the UK political landscape. Couch potatoes would have taken solace from the rise in the shares of home food delivery group Just Eat (JE.) where a slow down in sales was offset by expansion of the service. News that British Airways is to offer in flight Wi-Fi from 2017 sent shares of satellite communications group Inmarsat (ISAT) rocketing. The daily chart displays a W shaped reversal pattern, something which implies a push towards August resistance at the centre of the formation standing at 889p. This could be hit as soon as the next 2-4 weeks while the latest support at 747p remains in place.

A company which perhaps was a welcome surprise on the leaderboard over the past week is security group G4S (GFS), which from the London Olympics in 2012 had been on the back foot fundamentally and in terms of investor sentiment. However, it would appear that with Q3 revenue growth accelerating in the US, as well as double digit earnings growth, this company is back in the fold. We have seen the shares gap through their 50 day moving average at 233p, above which a 300p June resistance line target on the daily chart could be on over over the next 2-3 months.

Further down the stock market it was worth looking at the most highly traded situations. Among the leaders here was payment network provider Earthport (EPO). Here we have seen the shares melt through their 200 day moving average at 17p after announcing that it was aiming for positive cashflow this year. If this can be achieved the initial target over the next month could be as high as 25p at the top of a rising trend channel from April.

Finally, it would appear that there were two appropriate sayings relevant to would be Yorkshire Potash miner Sirius Minerals (SXX). The first is to be careful what you wish for, and the second, it is better to travel than arrive. The announcement of a Stage 1 financing plan has seen the stock nearly halve. The key now will be whether the trend determining 200 day moving average at 23p remain unbroken. So far this has been support for the stock and an accumulation zone for bottom fishers.