We had yet another pretty uneventful day yesterday. Yes, the S&P rallied 13 points and the Nasdaq rose more than 1%, but they both had negative breadth and volume remained very low. (The composite volume was higher than Friday and Monday, but at 2.5bn shares it was still very, very low.)…..The moves WITHIN those broad averages was led by the bond market. Although the inflation data in the morning was slightly above expectations, it was still below the whisper numbers and it cause the Treasury market to rally…and thus took long-term interest rates lower. This, in turn, helped the large-cap tech names to rally…and caused the bank stocks to take it on the chin.
Speaking of the banks, the earnings season for these names began this morning…and we’ll get a deluge of earnings from this group over the next few days. This morning’s releases have Goldman’s shares trading higher…but Wells Fargo’s and JP Morgan’s shares are flat-to-lower. It will be interesting to see how the group acts over the next week or two. The bank stocks always seem to get hit when they report their earnings…even when they beat expectations (like they did with this morning’s reports). However, once we get past their numbers (most of which come-out at the very beginning of earnings season each quarter), the group tends to stabilize. Therefore, once we get past the next few trading days, the group should go back to trading based on the movements in the 10yr yield and the yield curve in general…..In other words, we’ll get a better idea of how this group will act as we move through the rest of Q2 over the next two weeks…rather than over the next few days.
Of course, most of the focus will be on the first day of trading for Coinbase Global (COIN). We have already seen Bitcoin break above its March highs in a meaningful way this week, but there are some who worry that the cryptocurrency will see a “sell the news” reaction to the COIN deal before the week is over. This could certainly take place. However, if Bitcoin can hold its gains by the close of Friday…and thus give it a meaningful “higher-high” on a weekly closing basis, it’s going to be very bullish for this cryptocurrency over the near-term.
We do need to point out that the RSI chart on Bitcoin is getting somewhat overbought. In fact, it has reached the same level it did just as it was rolling over for a two week pull-back of 15%. HOWEVER, it is nowhere near as overbought as it has been at any other short-term top over the past year. In other words, there is a very good chance that Bitcoin will become much more overbought on a near-term basis before it sees a material pull-back.
What we’re saying is that if Bitcoin can hold up into early next week (and avoid a “sell-the-news” reaction to the COIN deal), it should run up into the $70k-$75k range before we see a pull-back of any consequence…….Of course, we all know that Bitcoin and other cryptocurrencies will remain volatile for a long time. The frequent 30%+ declines we have seen over the years are not behind us. However, this week’s breakout is a strong one, so unless it rolls-over in a power way immediately, the upside potential is strong.
When Bitcoin does decline 30%+ again….and that WILL happen (even if it’s going to rally to $1 million going forward)…a break below the 50 DMA should be a good indicator for us. This moving average has provided solid support over the past year…and it has been rock-solid support over the past 4-5 months. Therefore, when Bitcoin breaks below its 50 DMA in a meaningful way…whether that happens 3 weeks from now or a year from now…it’s going to raise a BIG warning flag on this cryptocurrency. Until that happens, the line of least resistance is higher.
Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder, The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
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