The unholy correlation? At least it seemed so.
Wall Street, which is much more than Wall Street in 2021, as it probably has been for almost two decades, was in risk-free mode. It was ugly. It was wide. There was still no panic, but there were people who were getting close enough. I have the DMs to prove it.
Something has turned. Markets that had been significantly lower moved in the other direction. The flow of capital is exactly what has changed. Risk on? From the depths of the devil? It seemed so.
It also appeared to the casual observer that stocks sell with and then rally with cryptocurrencies, which would appear to be the most unholy correlation. This question has also evolved behind the scenes. Did stocks sell and then rally based on movements in the cryptocurrency markets?
While at a glance the causal answer might be “it looks like it”, the point is, the answer is fuzzy. Yes, the markets are distinctly different. There was indeed some impact on the markets as well. Stock markets are infinitely more liquid than crypto markets, and while there is some crossover, there is no broad crossover for who is participating or how many participants are trading these markets. Not that there is no crossing at all.
One thing we do know is that we’re smart enough to figure this out. So let’s dig.
Major US stock indices fell at Wednesday’s opening. The Nasdaq Composite fell 1.7% at the start, but the S&P 500 charts best illustrate what happened.
Readers will see the S&P 500 test its own 50-day Simple Moving Average (SMA) early, pass that test and cry higher to close at the day’s highs (still down 0.3%). In slow motion it looked like this:
Keep in mind that the 50-day SMA is now at 4081. The level had been cleared shortly after 11:00 a.m. ET, retested, and then passed again, to be tested again after posting to 2:00 p.m. FOMC minutes which showed a lack of consensus in the committee on when to start talking about scaling back the central bank‘s asset purchase program.
Okay, especially Bitcoin. As most readers know, this asset class trades 24/7, so there is already a partial candlestick for Thursday, which retraced much of Wednesday’s candle. It becomes difficult to illustrate a 30% drop followed by a 30% rally using a daily chart and trying to tell a story accurately.
I was thinking that maybe after learning that 775,000 cryptocurrency trading accounts were to be liquidated on Wednesday at a value of about $ 8.6 billion, in the crypto version of a margin call, that maybe traders who could afford “HODL” may be draining funds from equity accounts in order to maintain positions in crypto accounts.
Readers will see that bitcoin sold out near 1:00 p.m. ET, rising rapidly lower and recovering from lows just as quickly. It doesn’t take a lot of imagination to figure out that this is where the liquidation peak occurred. Or maybe some are related to the currency outages that have occurred. Therefore, it seems logical that enough stock trading accounts had been emptied around 90 minutes earlier, as cross traders were told that either more funds needed to be deposited into their crypto accounts or that those accounts would be ported. to toast.
Correlation? Not exactly. One market has an impact on the other? Logical, as in what we see on certain days, when the events that first affect the debt markets, although much bigger, continue to impact both the equity and the commodity markets. .
As the morning light approaches, US stock index futures are trading lower. For the most part, US stocks traded a little lower on Wednesday. Only the Nasdaq 100 was able to turn green at the end of the day, as the two ‘growth’ sectors (using sector SPDR ETFs as a proxy), technology ((XLK)) and communications services ((XLC )) led the movement higher, especially late. back in the day after the Fed minutes, which might not be exactly what you and I might have expected.
Growth came first and second, with defensive sectors finishing in places three to six, and the five cyclical sectors taking the bottom five places on our daily performance charts. It’s almost like price discovery is controlled by pre-programmed algorithms or something like that.
Wake people up. It’s playable. This does not mean that it really represents the free market forces of supply versus demand. Thus the meeting of supply and demand is reduced to small exchanges timed in microseconds in order to distort the result. Understand that the goal is often to skew the results.
Wednesday’s magnitude was rather negative. Losers beat winners at both major New York stock exchanges, while falling volume also beat increasing volume in both regions. Surprisingly, on the Nasdaq, where the 100 has turned green and the composite is very close, the falling volume has simply outpaced the growth in volume by more than 7 to 2. The silver lining could be that with all this intraday volatility, the overall volume of transactions contracted. at the Nasdaq, and really moved to the side like 11 Wall Street.
In the short term, stocks will likely come back to reacting to yield spreads and dollar valuations more than anything else. As for cryptos. this crisis seems to be over.
The next crisis? Whenever the American and / or European authorities decide they have had enough. Whenever these authorities decide that cryptocurrency exchanges should be regulated, as are other financial exchanges. I’ve said it before, and it’s just a guess: the only reason in the world I can think of that the US and European authorities have dragged their feet in cracking down on the cryptocurrency markets is that they had to find a way to track transactions.
If I were someone who was using these markets for nefarious purposes, the time to fear this possibility is potentially within reach.
You probably know …
… that while the Fed officially clings to the position that the economy still has a long way to go and still needs support for what will be a while, enough time to signal ahead any intention to back down on the accommodation. However, the minutes of the late April meeting contain this line: âA number of participants suggested that if the economy continues to move rapidly towards the committee’s goals, it might be appropriate at some point in future meetings. to start discussing a plan to adjust the pace of asset purchases. “
Yes, April Jobs have been cold and April inflation has kicked in since that meeting. Do these two impressions combine in terms of policy interpretation?
Here’s what the Fed can do now without hurting the economy. Readers know I beat the table on this. STOP buying mortgage backed securities. Housing markets do not need support. The middle and lower classes have been excluded from home ownership, which only slows down the formation of families or households. I mean, gee whiz, pretend you have a thought in your head. Would that cause mortgage rates to skyrocket? Yes. Would this have an impact on the value of real estate? Yes. Isn’t that against my best interests? We do not care. Maybe we can let more people go through the door this way. We are winning together. We lose as one.
Yes, I started out poor. I had to work really hard and I still do. A lot of people my age like to touch the work ethic of the younger generation. I do not. Who among us can deny that even though we had to work hard, the opportunity was there. Is it really there for this young demographic? The low-end jobs we’ve all taken are suddenly available. That is true. It will not put anyone in their own home, nor will it create new households. There is already work going on on the wage front. Now we need to allow those earned wages to do their magic, or deal with what could be a generational loss of that ‘able to do’ spirit.
You probably didn’t know …
… That the report on financial stability in Europe was also released on Wednesday. Our friends across the pond are generally optimistic about vaccination and the general trajectory of their economy. However, the report warns that the flood of fiscal support and monetary stimulus is creating dangerous imbalances. (Sarge says: Wow, such a frankness.) The ECB goes on to warn that events in the United States could have a negative impact on Europe.
The ECB recognizes the possibility of further surprises on the rise in inflation in the United States, which could force bond yields to rise without economic growth as a companion. For you young people we called it ‘stagflation’.
Check out this line from the report: “A 10% correction in US stock markets could therefore lead to a significant tightening in euro area financial conditions, similar to about a third of the tightening seen after the coronavirus shock in March 2020.”
Does it sound like they trust us to do the right thing? No, we don’t owe them anything. We owe it to ourselves to be much less reckless in the future. The period of crisis demands a forced emergency response. The economy is already in post-crisis mode. Politics must be more agile.
Sarge likes …
… advanced micro-devices (AMD) plans to repurchase $ 4 billion of outstanding common stock. Come on Lisa, come on Lisa, come on Lisa. That said, the time to add was not Wednesday and maybe not Thursday.
Better to buy (in my opinion) either on a retest of recent $ 72 lows as this place has been tested for a week in a row or on momentum as there are key moving averages in the north that could provide some resistance starting at $ 77 and only clearing beyond $ 84. That’s more traffic than you’ll see on the Long Island Freeway on Friday night of Memorial Day weekend.
Economy (All Eastern hours)
8:30 a.m. – Initial jobless claims (weekly): Last 473K.
8:30 a.m. – Continuing complaints (weekly): Last 3.665M.
8:30 a.m. – Philadelphia Fed Manufacturing Index (May): Expected 42.9, last 50.2.
8:30 a.m. – BC Advanced Indicators (April): Expected 1.3% m / m, Last 1.3% m / m.
10:30 am – Natural gas inventories (weekly): Last + 71B cf.
The Fed (All Eastern hours)
18:05 – Speaker: Dallas Fed Pres. Robert Kaplan.
Daily Income Highlights (Consensual BPA expectations)
Before the Open: (HRL) (0.41), (KSS) (-0.12), (RL) (-0.71)
After closing: (AMAT) (1.51), (PANW) (1.28), (ROST) (0.83)
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