Market Briefing For Wednesday, June 1

June can be an 'event-risk' month- especially this year. Often it can go either way or vacillate in a range; such as last year with the projected dip and then the rebound into early-mid July (what I often refer to as the 'Mom's Birthday rally').

It is trickier than usual this year, given not only our Fed or global central bank and geopolitical concerns; but also the upcoming BREXIT vote, which now has (as first noted here last week) a slight bias to leaving; and surprisingly that now includes many 'in' the financial industry. That development, of course minimized by analysts as a catalyst impacting us, indeed will especially if it's perceived that a year or two of negotiating with the EU results in a UK economic contraction. If so you could pummel the Pound Sterling by as much as 15-25%; some currency guys estimate; which would roil markets significantly. Conversely, solid voting to 'remain' in the EU would simply trigger a relief rally, and probably not much of a lift to the Pound, but may trigger a short-term Euro rally and Dollar pullback, IF the vote goes that way. But again those would be transitory against a backdrop of a stronger US Dollar, which has evolved very close to the outlined pattern.

Now; the 'added' Travel Alert just as Summer travel plans are already made by a majority of vacationers, is a bit odd as relates to Americans, as we already do have an 'alert' ever since the Paris carnage and again the Brussels attacks. So I looked into it just a bit; and read about the poor performance of a 'trial' terrorist security drill at the main Paris soccer stadium last week; and acknowledgement by French Intelligence at a Conference within the last 3 days that they sadly do believe that ISIS and related elements active 'in' France and elsewhere now in Europe (thanks to naive policies some will say) have the personnel and capacity to mount attacks. Officials are concerned they won't be able to prevent them all.

That's a given of course; but the way it was presented was disconcerting (after all a German Police Chief previously had said people would panic if they knew a lot more that the authorities know; and that was right after they thwarted an ISIS attack on a German stadium). The State Dept. looks at this, and issues an alert; as it becomes clearer that the allure of Paris and elsewhere isn't the same this year.. The story hit the wires at 10:45 ET. In my view it was the catalyst for stock market declines; even though as far as I could tell it wasn't reported by financial media, which continued viewing market sectors 'as if' it wasn't a general decline. That's also why I commented that later we could see some comeback (and we did especially in the final hour, then faded) as there was a bit of shock aspect.

Mostly analysts and pundits focus on the U.S. political scene and the Fed. Both probably won't change much while remaining dicey, with issues and concerns incessantly discussed by the parties and the media. So I suspect trading around the presumed-hawkish Fed might domestically be a more pertinent issue for the moment. And we do see a probable rate hike; unless the market plunges first (it is not beyond the pale to consider some would break the market just to keep the Fed at-bay). As far as the earlier subject of BREXIT by the way; a hawkish vote is simply 'Dollar positive' in our view; the opposite of the 'remain' vote (initially).

So, if you got both a 'remain vote' and a Fed hike (they're decisions only a week or so apart); the market could be torn initially and sort of swing wildly later in the new month. Regardless the ultimate resolution likely sees something evolving to a 'contractionary' period this Summer; as we've outlined possible; even slightly similar to last year, where we had erosion later in July then a heavier August hit.

But again there are too many variables to simplify it quite so neatly.

What both alternatives suggest however; is that absent growth in 'profits' and a miraculous evaporation of debt concerns (focus on China a lot in that respect), it is an accident waiting to happen. Thus the question is how we arrive at a point of 'collision', rather than whether the 'accident avoidance technologies' soften the blow. Mitigating the damage from a collision is of course the Fed's job; and it's actually fairly candid that Chair Yellen has sort of acknowledged that they've not got sufficient cushion (I've often mentioned that) in-case of an 'emergency'.

Despite non-GAAP reporting or share buybacks, there is not an earnings growth period going on, and that's globally not just domestically. Throwing around what is termed trillions of 'helicopter money' only goes so far; and like past bubbles, a knowledge of history suggests that central bankers believe they can do more in a 'pinch' (think PPT or Plunge Protection Team) than they sometimes can. That the Chairwoman says they don't have the maneuverability is of course candid in a way; but it also suggests one has to be prepared for a market reaction to crisis developments, in which the central bank is unable to respond as in the past. So that alone should be disconcerting, and not dismissed based on the Fed making so many wrong assessments in the past; but rather simply admitting they don't have the ammunition now (because of overstaying 'emergency' low rates).

In sum: today's up-down-up-fade pattern was a sort of warning shot displaying how quickly markets can unwind if events unfold. Last week was 'thin' of course; and had nothing much behind it. There is also nothing much under this market to sustain it, if it cracks. You simply get intraday squaring and short-covering; in a climate that is increasingly sensitive to developments at home or abroad.

There is no need to delve microscopically into technical aspects now beyond a general awareness of an overextended market, any way one wishes to label it, with respect to Fibonacci retracements; RSI; wave-counts or even fundamentals considering how sluggish economics are; and that's irrespective of the global or military concerns. So far the pattern is eerily similar to last year, something I've alluded to a few times in recent weeks. If it persists, the market struggle evolves (with variations) as long as it can; but this year has the BREXIT and Fed hikes to contend with, not to mention the ever-ramping security issues. I still suspect at least part of recent 'jams' at TSA airport lines relates to heightened security in all aspects, ramped-up without fanfare, prior to today's latest travel warning.