Getting right down to it, what is the culprit of the recent flip back to the downside for stocks and crypto? Here’s what we found on the charts:
Factor Numero Uno looks to be represented in the recent fakeout and breakout of the DXY, which is an opposition to the performance of risk assets as of late.
Here’s a doozy, after a strong bear market rally over the last month the S&P 500 looks to have hit a significant resistance level around $4,300 which has sent it bouncing hard back below a couple of potential support areas in the $4,200 to $4,060 range. The SPX went from rallying back and regaining 50% of its losses to reversing into a staunch bearish correction leading to a Friday close below that $4,060 level.
This SPX price action is a likely signal that traders aren’t very convicted about the longer-term trend, but they’re just trading the market trying to regain some of their losses from the first half of the year.
The bear market rally looks to be a mix between FOMO from retail traders – which is reflected in the run up in growth tech stocks and meme stocks – covering of short positions, and wishful thinking from the market in terms of fed policy.
On the other hand, the argument can be made that job reports have remained strong along with earnings. That being said, risk assets such as stocks and crypto aren’t priced for today, they’re priced for the future – hence why they often lead economic data – and our view is that the macro data still looks to be trending bearish.
Now taking a look at Bitcoin. Obviously, the main asset we are looking for movements in is bitcoin, however, its momentum is so correlated with the macro of what’s happening in other risk assets, that the previous charts are key data to be watching when looking for Bitcoin movements.
Bitcoin just broke out on the edge of an upward channel in a long-term downtrend. Based on this trend, the breakout to the downside likely means a retest of its 2017 high of $20,000. If it were to break through that we’ll probably see a retest of recent lows, the next support level below that is around $16,000.
Last but not least is Ethereum price action. Ethereum as of now looks to have found some support just above the $1,501 level, after failing to break a strong resistance of $2,028 from back in 2021.
With all of the expectations surrounding the merge, Ethereum has been the superior asset over bitcoin as far as performance, moving up over 50% from its recent lows. While options data for Ethereum looks very bullish up until the merge, fending off what’s happening in the macro is unlikely.
This means that more negative economic data and bearish movement in stocks will break the otherwise long-term optimistic status quo of the crypto market, specifically the Ethereum ecosystem.