Equity investors better pay very close attention to the bond, currency, and commodity markets. That is what drives the equity market price action right now, and I don’t see how that will change.
The long end of the curve is sending a signal of slowing growth, while the short end of the curve is adjusting higher in anticipation of the potential of higher rates. The 2-year still has a lot of ground to cover if the Federal Funds rate will rise to 60 bps by the end of 2023.
While one would think that 10-year rates are likely to rise, don’t be sure. The strong dollar stifles inflation and slows global growth. The falling 10 and 30-year bond rates tell us that global growth and inflation will slow dramatically as the dollar rises.
This means the spread between the 10 and the 2-year rates will continue to collapse, coupled with a strong dollar, and the reflation trade will die. Financials, Materials, Industrials, and Energy are likely to be hammered.
While you might think that this is positive for growth stocks, it may not be. Lower interest rates are great for helping multiple expansion, but only to some degree.
What drives multiple expansion primarily are growth rates, and growth rates for growth stock will collapse back to the low end of normal. So even if rates on the long-end drop some, they will not be enough to offset the growth slowdown.
I know that most people will not understand this, but the market dynamics have changed this past week dramatically.
The Invesco QQQ Trust (NASDAQ:QQQ)’s managed to hang on to support at $342, but that was likely due to the options expiration on Friday because gamma levels above that price were mostly positive. All of that gamma is now gone, with the only positive gamma on the board at $350.
But more important is that there is still a triple top setup present in the NASDAQ Composite, and as long as that pattern potential remains, the potential damage that lies ahead in the index could be massive.
NVIDIA Corporation (NASDAQ:NVDA) had a very sharp reversal late in the day on Friday, a potentially damaging reversal pattern. The RSI is now clearly overbought, and the MACD is showing a loss of momentum and is on the cusp of turning all-out negative. A reversal here would send the stock lower back to $650.
Apple (NASDAQ:AAPL) made it back to $132ish, but the trends remain largely bearish as the stock could not break out and rise above the downtrend. This likely means we start heading lower again, back to $123.
Goldman Sachs Group (NYSE:GS) had a rough week and is nearly oversold, but not yet. The stock broke support at $350, and that means the next support level is at $323.
Micron (NASDAQ:MU) isn’t finished falling yet, with an RSI trending lower and the stock sitting on support at $77. A break of support pushes shares lower to $70.
Meanwhile, the melting of Bitcoin is set to continue. There are probably not enough people watching the log chart of Bitcoin, and it is important to look at both.
But the log chart shows that Bitcoin is very close to breaking its March 2020 uptrend. Once that uptrend breaks, it can easily fall back to 23,900 and perhaps 19,600.
The long-term trend in the RSI is still clearly lower, and that is a big negative for the trends. Additionally, Bitcoin is nothing more than a sentiment indicator for risk, and it continues to melt and tells us that the risk sentiment is falling too.
Couple that with a surging dollar, and suddenly Bitcoin as a hedge against the dollar means that Bitcoin will fall further as the dollar strengthens. Again, I continue to believe Bitcoin has no value and is a waste of time and energy, as are all cryptos.