If you’re watching CNBC or reading The Wall Street Journal, you probably think that the stock market is plunging due to Great Britain’s vote to exit the European Union.
In today’s stock charting video below, let’s step away from the Brexit news headline. And I’ll show you why stock prices were heading lower no matter what happened with the vote.
At its core, the market is nothing more than supply and demand as witnessed through price movement. Strip out all of the headlines and we are left with nothing more than buyers (known as demand) and sellers (known as supply).
So if I told you that Brexit was NOT the reason the market went lower on Friday what would you think?
Before you answer that question, just keep reading and watch this video.
Even if Britain had voted to stay in the EU, I suspect the outcome would have been roughly the same. I’ll never know this for sure as it didn’t happen but I can certainly justify why I think that with two simple reasons:
- The amount of supply at current levels is extreme.
- The market fools most of the people most of the time.
According to most journalists and media outlets, the widely accepted assumption was if Great Britain stayed in EU, the market would have gone higher. Since the outcome was different than the expectation, this was the “reason” the market went down.
That’s just ridiculous.
The ONLY reason the market sold off is that there were just more sellers than buyers. It’s not a “sexy” reason, it’s not a headline grabber, but it’s the truth. The rest is merely conjecture.
In the context of the market movement, Brexit was nothing more than an overhyped event. That hype helps fuel a coiled-spring-type price movement. Once the coil is unleased the movement is violent in terms of speed but in this instance not unexpected.
The charts suggested this was ALWAYS the path of least resistance.
“Seismic shifts” in charts are just radical changes in price. We see these types of shifts most often occurring in specific stocks from earnings reports. These shifts typically start violent in nature but ultimately can settle into really nice trading opportunities when you know what to look for.
Be it “Brexit”, the events in Greece not long ago, the upcoming U.S. presidential election or any other widely watched world headline-driven event, always remember to ask yourself, “what do the charts say about the laws of supply and demand?” In the end, that will always be the path of least resistance and most likely your path to profits.
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