Is HODL the only way forward?
There are initial signs that the financial system is saturated with liquidity. Can it give a continued rise or a price drop when the Fed is forced to cut back on support purchases? Maybe the stock market needs to learn the expression HODL from the crypto market?
There are initial signs that the financial system is saturated with liquidity. Can it give a continued rise or a price drop when the Fed is forced to cut back on support purchases?
Maybe the stock market needs to learn the expression HODL from the crypto market?
There is nothing as difficult as predicting peaks. Alternatively, you can turn it around- there is nothing as easy as pointing out peaks, in retrospect.
In the market there are always analysts and opinion leaders who believe that the market is too expensive or too cheap. They rarely change their views, which means that the recurring ones are right when the market moves.
We are humble and simply say that we do not draw any conclusions before there are clear trend breaks. The season is challenging for the stock market between May and September, so at least one major decline should occur. But due to all the liquidity pumped out by the world’s governments, there is a lack of investment alternatives other than the stock market. This wave lifts everything from stocks to real estate, villas, condominiums, commodities, and cryptocurrencies.
In periods when the market is weighing in on a possible trend break, we tirelessly chase signals.
Crypto is hopelessly difficult to analyze because there is no real value in building a fundamental analysis around. It is therefore traded according to supply and demand, technical analysis and in relation to other asset classes such as gold. The crypto industry has developed its own mentality and jargon. The word HOLD is a separate word. According to the myth, the word was created at some point when someone in affection would probably write HOLD during one of all the sudden price drops. But the letters landed wrong, and someone interpreted HODL as “Hold on for dear life”.
When you look at the graph for Bitcoin above, you understand why. Not even the one who purchased at the top in 2017 has currently lost money in Bitcoin. However, investing in Bitcoin is not for the faint of heart. Note that the graph is logarithmic, which smears out the differences. What is clear, however, is that a decline in Bitcoin of +30 percent is a recuring phenomenon. That is when HODL arrives, which is almost the same as buzzing at the mast with the intention to ride out the storm, at any cost. What the market for crypto shows is that every time the market falls, it comes back with renewed vigor again.
In the weekly graph, Nasdaq has increasingly received the design of a giraffe. Clearly, the market would need a downturn and a consolidation. The only thing we have received so far is a rotation from growth to value shares. With Covid-19 as the reason, the central banks continue to push money into the market.
In the weekly graph for the S&P 500 index, one can see how EMA9 still holds:
But for those who shrug their shoulders when it comes to Bitcoin, there is reason to reconsider. Below is the graph for Bitcoin versus Nasdaq. A continued fall in Bitcoin could be a warning signal for the entire market. This is the same as the implosion in tech companies that preceded the entire crash in 2000 when the IT bubble exploded.
In the weekly graph for Bitcoin below, there is not yet sign of that a bottom should have been reached, so this is a clear warning signal for the market.
The graph below shows how much liquidity the banks push back to Fed for overnight storage. Banks are currently pushing USD 249 billion into the Fed. It is more than during the peak when the Covid 19 crash reached the financial markets.
This is a clear signal that banks cannot take care of more money. This was mentioned as a problem in the latest Fed protocol. A negative interpretation of this is that the Fed will soon have to start talking about “Tapering” again, i.e., methods for reducing support purchases. This with the simple argument that the market is saturated with liquidity. As we wrote in previous weekly letters, anomalies are being created in the USA, among other places, where unemployment is not falling despite the lack of labor. With generous support money, there is no incentive to take low-wage jobs in the service industry. Had the market for robots been more developed, they would have had a window of opportunity to take over. Instead, the economic recovery is being held back due to labor shortages.
But we are not convinced of the conclusion either. Just because the Fed is talking about tapering, the market does not have to crash. The Fed now has the option to buy directly in the stock market via ETFs. They are likely to be quick to deal with a downturn, but it is in the Fed’s interest to keep the stock market up.
A note in this context is also that the CESI Index in the US has begun to approach zero. CESI shows how many macro reports that currently exceed expectations. We are now going from a period where the macro statistics have been favorable for the market with mostly positive surprises to a period where there are about the same number of positive as negative surprises.
As usual we must stick to the graphs. There are some markets who stand out. The market for SPAC is still hot, but at the index level the market is in a rapid decline. SPAC has gained headwinds as the market moves from growth to value companies. We will return to this market next week.
The market for IPOs is also starting to cool down:
Instead of popular companies like Tesla, investors may continue to look for buying opportunities in the old industry. Above is the Ford stock seen, which is breaking up.
The Tesla share is clearly under pressure, but a break of MA200 and Fibonacci 61,8 has not yet come:
HYG, which remains our favorite in terms of reflecting risk appetite, as it shows the market for high-yield bonds, gives no signals but consolidates in anticipation of a new trend.
The Copper price development shows a grim picture. This is since it has fallen through EMA9 and MA20, at a relatively high speed. The next level now is found around MA50. China is probably behind this downward movement. The question is whether you dare to go against them?
In the options market, optimism about the copper price has turned from positive to negative, in a very short time.
Swedish Boliden share is also under pressure, testing the rising trendline as well as MA50. A continued decline in the copper price increases the probabilities of a break to the downside. In such scenario, MA100 currently trading at 315 SEK is the level to keep an eye on:
The timber market was out early and indicated a downturn when the market focused entirely on inflation. Note the stable turn on the MA50. It can be a positive signal in all noise.
Our focus on gold a couple of weeks ago proved to be correct. Gold has gained ground while Bitcoin has lost. Is 1 900 next?
Gold is strengthened by a weaker USD. From a technical point of view, there are no reason for the currency pair EUR/USD not to continue up towards the previous local high from December 2020/January 2021. Such a move would be in favor of gold.
The OMXS30 index continues to trade nicely on a short downwards sloping trend under a falling momentum.
The DAX index is consolidating, trying to find out the direction of the trend:
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