Bitcoin is back to hovering around $9,200 and in red as it continues to follow the S&P 500 but only to the downside.
The Dow Jones Industrial Average and the S&P 500 have had two consecutive weeks of gains while tech shares have been pushing Nasdaq to new highs, during which bitcoin-only ranged.
“It worries me that with how bullish SPX SPY & NDX QQQ are that BTC still cannot spring loose,” noted trader Jonny Moe.
“Equity indices can't go up forever, they will pull back at some point, and given BTC's new-found correlation, I'm cautious that once they do, BTC is going with them,” he added.
Yesterday, after the S&P 500 briefly touched the highest level since the coronavirus pandemic, the markets tumbled. The main US index stumbled on signs that the coronavirus was throttling the reopening plans in states like California. An increase in tensions between the US and China are also damaging the sentiments.
According to many analysts, the rally has the mega-cap stocks overbought and overvalued. And to confirm that another rally has begun in the broad stock market, it needs to be seen if the S&P 500 has broken the key resistance on the upside.
“The ‘growth’ right now is like a game of musical chairs with 100 players and 3 chairs,” said Adam Crisafulli of Vital Knowledge. “No sentient human could look at some of the super-cap tech stocks and say the latest move wasn’t anything other than a momentum-driven melt-up rally.”
Tesla rallied more than 16% to close over 3% lower. “Tesla is the poster boy of a parabolic move here,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “It got really just stretched and overbought and over-crazed in these tech stocks.”
Tesla's market cap started the day by gaining "a GM" (+$35B) and ended the day by losing "a BMW" (-$42B)
— Jim Bianco (@biancoresearch) July 13, 2020
Investors are optimistic, but there’s still a lot of uncertainties. Traders are now awaiting reports from a slew of companies to provide concrete guidance on the impact of the virus.
Some of the key events coming up include the earning season of US banks viz. Goldman Sachs, JPMorgan, Citigroup, Bank of America, BNY Mellon, and Wells Fargo.
Moreover, the Bank of Japan would be taking a policy decision while the European Central Bank is to set monetary policy. The EIA crude oil inventory report is also to be released along with China’s second-quarter GDP – all is coming this week.
Backdrop, however, is also positive with the recovery taking hold, and job data signaling the economy has shifted in a positive direction. More stimulus is also coming.
"if that fails to materialise, we expect more stimulus to be rolled out" – sums up the current state of affairs around the world. pic.twitter.com/Bnqj2R12nA
— Alex (@classicmacro) July 13, 2020
“Keep the big picture in mind: major US stimulus package coming up by August 7. That's the prize. Need to be positioned heavily long for it,” said economist and trader Alex Kruger. “It would be great to get a washout this week and the next to trade long into the end of the month.”