The UK referendum vote on Europe takes place tomorrow and the results should filter through in the early hours of Friday morning. (The first partial results from small constituencies should arrive shortly after midnight and the full final result at "around breakfast time", according to the Electoral Commission.)
Recent price action in the FTSE suggests possible potential to the upside, however, there is some sizeable resistance to negotiate first and to confirm a trend shift.
There are 2 possible scenarios we would like to highlight in terms of the next drive with the downside offering slightly more technical reason.
Whatever the outcome the initial move will be very fast and the difficulty lies in being able to enter the trades at reasonable levels (i.e. close to the market when the result is announced).
A vote to exit the European Union would be negative for the FTSE and result in a sharp move lower. A swing in the polls over the last weekend, in favour of remaining in the EU, has resulted in a positive and extended rally of over 6.5% from last Thursday's low print.
An exit would lead to a reversal towards the lows and could extend towards the bottom of the bearish channel and confirm the AB=CD correction lower.
A vote to remain in the EU would be positive for prices and should see the extended recovery continue through current resistance.
This would also confirm the 'potential' reverse head & shoulder formation and result in a move towards the measured move target.
Management and risk description
This medium-term trade view consist of a hard stop which would be adjusted once the next trend is defined and we will update through the chat facility below. We have noted 3 targets to take partial profits at:- 1st target (50%) and 2nd/3rd targets (25% each)
Entry: Buy at market if result of vote is for UK to remain in EU (Bremain)
Sell at market if result of vote is for UK to exit EU (Brexit)
Stop: Sell a break below 5890 (Bremain)
Buy a break above 6500 (Brexit)
Target: Bremain targets
6778 (78.6% fib ret), 7127 (April 2015 highs) & 7370 (H&S measured move target)
5660 (78.6 fib ret), 5497 (Feb 2016 low) & 4953-4803 (161.8% fib ext/AB=CD)
Time horizon: 3-6 months
Source: Saxo Bank. Create your own charts with SaxoTraderGO click here to learn more
— Edited by Clare MacCarthy
Non-independent investment research disclaimer applies. Read more