There are likely three reasons for the recent stock market rally. First, massive bearish hyperbole in the media at the end of last year led everyone to predict lower stocks prices and a recession in 2019. As one great analyst used to say, “When everyone expects the same thing, something else happens.” In this case, the bearish scenario has not played out and fueled the rally.
Second, institutions that indiscriminately sold at the end of last year are being dragged back in on the long side kicking and screaming.
Third, dovish comments from the Fed after the last rate hike and during the shutdown are fueling upside.
Looking at the recent up move, we see the S&P 500 ETF (SPY) has reached its first big technical inflection point. On the two-day chart, SPY has reached its 200-period average. That level is $267 (Figure 1).
If SPY gets through $267, the next stop might be a zone between $273 and $279. $273 is the 200-day moving average on the daily chart. $279 is the 76 percent retracement of the Q4 downdraft (Figure 2). Sometimes, even if SPY is eventually going lower, a 76 percent retracement of the initial move precedes the decline.
If SPY moved to $279 that might correspond to a move in the VIX “fear” index back to its bottom bollinger band and Fib angle near 12 or 13 (Figure 3).
Why should crypto traders care about this?
Well, if stocks continue to rise and VIX continues to fall, major asset managers may not need to add Bitcoin (BTC) to their portfolio to beat their peers. Honestly, they may be too preoccupied getting the number of equities they need back in their portfolio.
Conversely, if equities stop and turn lower, or if equities rise and Bitcoin (BTC) can hang tough, it might be a positive sign for Bitcoin for the rest of Q1.
Last year, the pattern was: equities down, crypto down. We have to watch carefully for any repeat or change in that pattern as well.
: Equities are at a technical inflection. Like it or not, what happens in equities can have a big impact on crypto. S&P (SPY) and VIX are officially on the indicator dashboard on the Crytpo.IQ Trading Desk.
Join me there.