This report is not a personal recommendation and does not take into account your personal circumstances or appetite for risk.
This has been a busy week for UK politics and things are about to go up a notch. And I am not talking about some arcane legistlative motions that have no impact on financial markets. This is about as real as it gets for business, stocks and the UK Index . Theresa May’s famous Meaningful Brexit Vote is coming up next Tuesday.
Now, it’s not for me to say which way the vote will go. We’ve already had 3 days of emotional debate in the House of Commons. Smoke-filled rooms chock-full of MPs, ministers and titans of industry. There are still 2 more days of debate until the actual votes get tallied, but alliances are getting forged and broken non-stop.
Whichever way the 11 Dec vote goes, come Wednesday morning, the markets are set to react strongly to the results. Previous experience of Brexit headlines suggests 5-10% moves on UK Index blue-chips could materialise. And that’s what I care about deeply as a trader, both for myself and on behalf of my trading clients.
Stocks that react the most acutely to Brexit-related headlines include heavyweight Banks (13% of the UK Index ), Housebuilders and Airlines. Multi-billion pound stocks and intensely sensitive to both positive and negative Brexit news.
When the final Brexit treaty text was approved late on 14 Nov, some of UK Index Banks I follow sold off massively on the open, only to bounce back and recover some of those initial losses by the market close.
For example, here’s a chart of Barclays’ share price from 15 Nov. The shares opened at 173p, went as low as 160p (-7.5%), but then rebounded to close at 166p (+3.75% from the lows).
The main Brexit headlines were known from the previous evening and I personally called all my clients with the news before the open. No advice, of course, but useful market information.
Which means that the clever hypothetical trading move would have been to sell banks short at the open, profit from the drop, then buy the dip for a total potential round trip of over 10%. For a big bank stock, that’s an uncommon bout of attractive volatility
I am not saying that something identical will happen on Wednesday. After all, MPs could either approve or reject the Brexit bill, with huge consequences for sensitive stocks. The point, however, is to put yourself in a position where you can benefit from either outcome.
Final debate and voting is likely to happen late on Tuesday, meaning that my clients will be fully aware and prepared before Wednesday’s open to trade big Banks and Housebuilders. Up or down, there will be plenty of volatility and tradable opportunities.
If this is something that you are also keen to take advantage of, you ought to get in touch with me as soon as possible. On Wednesday, I will be too busy to go through getting new accounts set up, approved and funded, but if you are in a position to set up and fund your account on Monday, we can discuss all potential buy-and-sell scenarios as well as your risk management options in advance of the final Brexit vote.
With everything that’s been going on with the UK Index and other financial markets, there is plenty of attractive trading volatility to go around. The Parliament Brexit vote is one of such critical inflection points, a key chance for traders to take advantage of sharp share price moves on some of the most recognisable household names like RBS, Baratts and easyJet.
But there is no time to waste. If you see an opportunity ahead of the Brexit vote, give me a call to discuss your trading options.
Avin Nirula, Trader, 7 December 2018
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Prepared by Michael van Dulken, Head of ResearchComments are closed.
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