Market Briefing for Wednesday, June 22

More than a holding pattern ahead of the UK's Brexit vote, as fairly volatile intraday action prevailed. Most of the news focused on either Brexit or Chair Yellen's Humphrey-Hawkins testimony, which indeed replicated her post-FOMC remarks, relating to 'cold feet' about getting the central bank out of the corner.

A side rationalization was her response to a question relating to 'Fed credibility', when she dismissed the idea of rates deviating from the Taylor Rule. As Prof. Taylor himself tweeted thereafter; if you interpret rules subjectively, it's no rule.

That reminds me a bit of when the Fed authorized Citi to fund Smith Barney in the months ahead of the 'Epic Debacle', by essentially lowering the firewall 'rule' which was the requirement for (in earlier years) President Clinton to sign-off on repealing Glass-Steagall in 1999. Again; if there's a developing fire and firewalls are taken down even though the risk of fires spreading (as we outlined then as I had reviewed the list of the largest institutions at risk implied by a Letter from an official of the Fed to the CFO of Citi), what's the point of having a firewall rule?

Janet Yellen sounded frustrated; and danced around opportunities to address a few aspects of where things are headed. She touched on Brexit indirectly; with a clear avoidance of dire warnings coming from the 'Remain' camp in Britain. As to the process, our President already interfered too much, by suggesting we'd put Britain at the back of the 'queue' (line) if they leave the EU? Really Sir? I'd say the opposite happens; the next President (whomever) would move to enhance the Atlantic Alliance, and incidentally so would the EU despite their threats.

So this week is all about Brexit. Europe is trading on earnings that have been grinding down for years now; and the only reason they may be viewed more attractively than American stocks, is because they're at lower PEs, but generally currency advantages have eroded in recent months (but that may change if Great Britain votes to get out).

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Bottom line: You know our view about how this will likely play out in currencies and the US market, depending on the outcome. Further; that even in the nearer term possibility of subsequent (relative) stability into early-mid July; we envision significant downside during and after that phase (with more dramatic risk along the way; including the possibility anytime of a 'Black Friday'  or 'Flash Crash').

Hence, while we certainly had to step-aside the 2092 short-sale with its break-even mental stop (as noted for any partial position as it was mostly just at a point of representation since we had suggested traders harvest gains during a couple of the prior week's sell-offs); and via the first intraday comment Monday, went back to the short-side nearly at the same level; about 2090 (give or take).

For investors the primary remains of fading rallies; not trusting any rallies with regard to sustainability and realizing that (for instance) if Brexit goes 'Bremain', then you get a sharp rally, which again we are confident will not change macro investment prospects; and that an investor should continue to be patient with respect to putting new money into markets; and likely use any such rally merely to lighten-up further, if one feels the need to build additional liquidity.

In sum: We hold short Sept. S&P from 2090, and recognize a treacherous week to trade, a bit more so than most, can still have extreme volatility ahead.