If you had decided to take a long nap and sleep through the momentous event of last Thursday where the UK voted to leave the European Union, and had just now awakened, you would have believed that nothing at all had taken place.

Take a look at this and marvel!

The VIX has actually fallen BELOW the level it was trading at prior to the vote! We just dreamed that the entire thing ever happened.

WE just experienced an historical turning point for the EU with all the fallout from that vote having yet to be made apparent to the financial markets (and to the political realm for that matter) and yet the markets have now completely discounted it. Keep in mind that these are the same markets which got the outcome on that historic vote completely wrong. That needs to be kept in remembrance.

I am getting the distinct impression that the startling lack of concern about the ramifications of this vote is due to some sort of misguided view that no matter what that fallout might happen to be, the Central Banks will be there to smooth things over and make it all painless. Wave their magic wand and all the bad stuff will just go “Poof!” and vanish away.

In all seriousness, the lack of concern, the complete reversal to a stunning complacency is unnerving to me. I understand that any so-called “divorce” between the UK and the EU will not happen overnight. It could take up to as long as two years but underneath all of this is the fact that interest rates remain in negative territory in parts of the EU and that global growth issues are still a major concern among investors who keep rushing into government bonds, no matter how little they might pay or even if they are forced to pay to own that same government debt in some cases.

That is why when I see the “RISK TRADES” come piling back on in this environment, I am convinced it is because traders are brimming with confidence that the Central Banks will be right there to do what they always do, namely, provide ever increasing amounts of liquidity. If you think about it, these people running the Central Banks have every incentive to keep doing that as there are no consequences whatsoever to them personally for so doing.

They cannot be voted out of their positions and while they ostensibly answer to their political overlords, in practice they are unaccountable to no one but themselves. Thus – no matter how many more corporate/government bond buys they engage in, no matter how much further they drive interest rates down below zero, they are immune to the consequences. The ones who are not however are those on fixed incomes looking for safe places into which to park their life’s savings without exposing themselves to a stock market that more closely resembles a damned bingo machine ball than it does to a real place for price discovery.

People in their elderly years simply do not have the time left here on earth to risk another equity market crash hoping that they will live long enough to recover their losses. They need some conservative investments that throw off at least a meager yield so that they can live out their retirement without the stress and worry of having to watch the stock market dive 600 points in a single day and then bounce back up before diving again before bouncing back up, etc.

Thanks to the Central Banks, that is now impossible.

Everything, and I do mean EVERYTHING, in these markets, as now become a SHORT TERM EVENT. Long term stuff is out. To a hedge fund manager, a long term trade is 24 hours. That means there remains no consensus as to where any of this is heading; merely rapid shifts in sentiment. That leads to wholesale flipping of positions, reversals, liquidations, margin calls, etc. In short – things in the markets are as unsettled as ever with the difference that many traders are scared to death of putting on any position that might just happen to get caught in the crossfire of a Central Banker waving his or her magic wand.

Traders are trading Central Bank expectations – not anything real.

Enough of the color commentary for now…

Here is a chart of the HUI – the gold stocks of late seem to be following the broader stock market more than anything.

The index is hovering just beneath the 245 level with dip buying seen across the sector as the index moves down towards 235-232.

Gold itself is still sitting within striking distance of the next level of overhead resistance on the price chart which comes in starting near $1340. It will take a push through this level and a close through $1350 to set up the potential for a run to $1400. As long as the inflows into GLD continue firm and the tonnage keeps rising, it is hard to see gold breaking down even with all those large spec longs in there. The sentiment remains too strong as evidenced by those inflows.

Silver managed to finally close above $18.00 which is a big accomplishment. There was some chatter today that a major analyst said something positive about silver’s prospects and that, combined with the general RISK ON sentiment, was enough to beat back some of the selling that was coming in at that level.

 The chart looks strong for now but the big test for the metal will be whether or not it can close out this week above $18. If it does, then it augurs well for a potential run to $20.

Initial downside support in silver should be seen down near $17.25 – $17.15 with what should be substantial support near $16 if it ever got back down there.

As long as the market is enamored with RISK once more, silver should do well. Actually, it should outperform gold in that environment meaning that the Silver/Gold spread should run in favor of Silver. If the market gets jumpy for any reason, that spread will quickly reverse with gold then holding much better than silver on any strong RISK AVERSION sentiment.

You tell me what the mood will be on any given day moving forward and I will tell you what that spread will do. In the meantime, time to bring back out the Daisy Petal trading strategy.