The Struggle to Normalize Euphoria

For me the stock market was over-priced in January 2020. That is why I caught the COVID down move well. I didn’t know about COVID, But I was on board for the implosion. The first long bounce upward after the bottom was an easy trade, however I continue to be surprised by the move upward after April 9, 2020, and for sure the move after August 6, 2020.

This brings us to where we are now, a market overpriced by any measure as we sit waiting for interest rates to rise. And yet the CNBC cheerleaders are doing everything they can to try and normalize the excesses, and then push things upward. I have my doubts.

Here is the SPX/US10Y chart that divides the S&P by the 10 year yield. As the chart showed a couple of weeks ago, there was a big play to keep interest rates suppressed, and thereby push stocks higher. The chart had the breakout and then fizzled.

Bitcoin

Another thing that I am watching over the past few days, Bitcoin. I don’t trade it, and am probably very out of touch in my belief that as a store of value, it makes Tulips look conservative. I will concede that Bitcoin may have value in the blockchain transaction area however. Here is an interesting chart where I have applied one of my favorite chart signals, the cross of the 21 day average through the 50 day average. It gave a cross over sell signal last night. I would view this as a first stage signal that will accelerate down once the 50 day average turns down.

For a little history, the previous bitcoin signal using this methodology was a buy signal on October 14, 2020 when bitcoin was trading at 11,530. Last night’s signal was triggered when the price was at 54,650. It will be interesting to see how much bitcoin is tied to the overall risk trade in the markets.

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