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This week the markets may be myopically blinded by Thursday’s Brexit vote.  As noted several times I rhetorically think Britain will remain in the EU for the simplistic reason change will create an unquantified environment.  Human nature dictates one fears more of what they don’t know rather than what they know and the conditions in England are not that dire to demand a tectonic change.

I will reiterate the polls of other major events were radically wrong, defined as the status quo remained by a wide margin.

Commenting about Friday’s market action, the Dow ended nominally but the NASDAQ led be technology and healthcare, two vastly over owned and recommended sectors that were priced to perfection fell about 1%. . This was the sixth market decline in seven days.  The NASDAQ Biotech index fell 1.5% and is on the longest losing streak in 20 years.

As noted so many times, a simple premise for a sector/company to rally is more buyers than sellers and if everyone already owns a company/sector who is left to buy when selling commences even on the most insignificant negative news.  No one.

Many times I have commented about the massive influence of index mimicking ETFs and algorithmic trading where the big get bigger and the small get smaller, essentially violating the standard FINRA regulation of “past performance is not indicative of future performance.”

Depending upon the data, large cap momentum growth had outperformed almost every asset class since at least 2011.  Some data suggest the outperformance commenced in 2006.

The favorite sectors in large cap momentum growth are healthcare/biotech and technology, two sectors that have grossly underperformed since the beginning of the year.  Is the large underperformance of this group a major reason for intense bearishness?

I think yes.

As noted above, Brexit will dominate headlines this week especially given the dearth of statistics until week’s end.  At week’s end, various housing statistics is posted as is durable good, the LEI and a sentiment survey.

Last night the foreign markets were up. London was up 2.65%, Paris up 3.29% and Frankfurt up 3.47%.  China was up 0.14%,  Japan up 2.34%and Hang Sang up 1.69%.

The Dow should open sharply higher given the declining odds of Brexit.  Oil is up almost 2%.   The 10-year is off 15/32 to yield 1.68%.

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.