The week leaves the S&P 500 (SPX) nearly in the middle of the range of 2030 to 2120. A crack above 2100 was seen in the prior weeks, but there was a total failure to carry through. That leaves the market with a failed rally, and a slightly expanded range with a small bullish bias.
The continuing weekly relative performance churn in sectors has guaranteed that the index is not likely to go anywhere fast. Until there is some sort of sync-up with all sectors participating, we are not likely to get a breakout or breakdown. For index range traders, the environment has been ideal. For everyone else, it's been a painfully slow consolidation phase.
However, there are some external signs to watch now apart from the internal price action. One is the small jump in the CBOE Volatility Index (VIX) that began last week with a breakout above 15. While there have been occasional moves above 15 since March of this year, they have not lasted long.
This move higher for the week is different behavior, which could be a reflection of anxiety ahead of next week's Brexit vote on June 23. If that is the case, a vote to maintain the status quo would likely see the index drop back below 15 again. A vote to leave would take markets by surprise, especially in Europe, where a large majority of fund managers see no chance of an exit. It is probable that much wider market swings would be seen than has been the case for some time if an exit is favored by U.K. voters, though no one is really sure what the market reaction would be if the anti-EU vote prevails.
What may be especially worth watching is if the vote goes to the pro-EU camp and volatility remains higher. This would be the necessary confirmation that we may be seeing something more substantively bearish developing internally in the index.
Another factor to watch next week has been the relative lack of reaction to a Fed that is apparently willing to stay on hold on rates now quite possibly through the end of the year. One would have expected this to be a gift to the bulls. It may still yet be, with reaction delayed until next week's Brexit uncertainty is out of the way. Alternately, it could be that the bears have been right all along that the Fed's policy has failed to have any real stimulative effect and that the economy is weakening in spite of, or possibly because of, extraordinary accommodation on the part of global central banks.
If the latter becomes a more broadly accepted market view, the market could see real selling begin ahead of Q2 earnings season in July.
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