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#Macro – $SPX, $NDX, $BTC
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It was a slow day for stocks following the January options expiration date. The S&P 500 started higher, gave back some initial gains, and went sideways, finishing up by 22 bps. Today, the index was helped by Apple, while Nvidia’s influence was greatly diminished, only adding 4% to the day’s gains based on the Bloomberg 500 Index, which tracks the S&P 500.
The S&P 500 traded one full bar above its upper Bollinger band, which doesn’t happen too often. The general rule I have used is that when this happens, it is due to consolidate sideways or pullback, especially with a bearish divergence, as noted by the downward-sloping RSI.
The NASDAQ 100 also traded a full bar above its Bollinger band today, with an RSI of 73, an overbought condition. Again, this would suggest a move sideways or lower is to come.
Another interesting development today was the sharp decline in Bitcoin, which fell by roughly 5% at one point, and at least as of this writing, is down about 3.25% and flirting with support at 40,000. That remains a key level with a maintained support break at 40,000, setting up a further drop to around 37,500.
I wouldn’t say I like following Bitcoin because it is unpredictable, and there is no logical way to value it. I think it is a worthless asset class. Anyway, it appears to be one of the best tools I have come across to measure real-time liquidity and leverage in the market. My reserve balance model is below, overlaid with FINRA Margin Debit Balances in Yellow and Bitcoin in purple.
Also, Bitcoin seems to hold the key many times to where stocks are going because, let’s face facts, bitcoin is a risk asset, and stocks are a risk asset. It makes sense that both are tied to liquidity levels and, more importantly, leverage in the equity market. I have been guilty of not heeding Bitcoin’s wisdom in the past.
Anyway, it would seem that something is going to give in to the high-yield credit spread environment, which either leads to financial conditions easing even further or leads to a massive move higher. The Relative Strength Index is clearly trending higher, suggesting momentum is for the CDX HY Index to break out and rise sharply from the current level. Also, the dollar is starting to move higher, suggesting that the CDX HY index will break out and start rising. There is also a downtrend that, if broken, could suggest that high yields spread go higher. Obviously, if support is broken at 350 on the index, then financial conditions ease further.
If the dollar and the RSI have anything to say, the HY Index is likely breaking out to the upside, bringing tighter financial conditions with it.
Charts used with the permission of Bloomberg Finance L.P. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.