Mid-week market update: The hot CPI print on Tuesday spark a massive risk-off episode. The S&P 500 staged a partial recovery today. The key question is, “Is this just a hiccup in the bull run, or the start of a correction?”
The stock market has been ripe for a correction for some time. The percentage of bullish stocks on P&F charts has flashed a negative divergence, which has usually resolved in a market downdraft.
Callum Thomas at Topdown Charts also showed that the ratio of the trading volume of leveraged long to leveraged short ETF has spiked, which is a sign of a frothy market.
But sentiment is a condition indicator and not a trading signal. While signs of a crowded long represents a high risk condition, you need a catalyst for the market to pivot to a risk-off environment. The hot CPI report could be a trigger, but we don’t have any technical confirmation just yet.
Risk appetite indicators
Here are some of the things I am watching. The S&P 500 is testing its 10 dma, which is acting as initial support. If it weakens further from here, there is secondary trend line support at about 4920-4930, with further support at the breakout level at about 4820. Moreover, the 10-year Treasury yield spiked in response to the CPI report and retraced some of the move today, but can it decline through the support zone which is shown on an inverted scale in the chart?
Next week’s Nvidia earnings will be a big day.
Bitcoin at new highs today after yesterday’s pullback is a risk-on positive sign.
Bitcoin went up but gold got smashed, how does that work? What interests me about BTC is that in spite of the ETF news and pivot talk, it has not made a new ATH. If billions of $ pouring into ETF’s doesn’t do it, what will? Maybe Blackrock wanting to project the BTC logo on buildings is a tell.
Call me a Luddite but I’ll take precious metals over BTC every day. Not that I trust the US Gov. but if they came up with a coin tied to a basket of commodities, I would buy that, it would be similar to a bond, but BTC just ain’t for me. People only buy it because they think others will buy it with enough vigor to maintain the price…and the miners will mine it even if they lose money…isn’t mining a boom bust thing?
I look at it purely from trading point of view. At least there are no earnings surprises, just supply and demand dynamics. Buy and sell through etf or options.
I don’t agree with the idea that it’s a risk on or risk off indicator. It has it’s own ecosystem.
World gold reserves are valued at around 12 T. BTC is just around 1 T. That explains a lot.
That’s why my bias is toward silver, it is more useful, but not as portable. Physical, buy gold. Speculate, buy silver. The bid ask on physical makes trading a problem, but there is a lot of gold in vaults, much less silver