Morning Comment: Bitcoin Testing VERY Important Support

The bond market is not reacting to China's dovish comments on trade.

The equity futures are trading almost 1% higher this morning due to dovish comments out of China on the trade negotiations. They said they wanted to emphasize the need to “de-escalate” the trade war…and also said that they wouldn’t immediately retaliate against the U.S. tariff increase. Even though this has the S&P futures trading 26 points higher as we write, the Treasury market is basically unchanged…across all maturities.

In other words, the bond market seems to believe one of two things. They either believe that this is just another short hiatus in a long line of “intermissions” we’ve seen this year that will be followed by another flare-up in the trade war…or they believe that the damage has been done and the U.S. & global economy will continue to slow in the months ahead even if the trade war calms down for an extended period of time.

Not sure why "FOMO" exists right now.

Of course, the bond market could also be worried that both are true, but either way, there’s no question that the bond market does not believe that the comments out of China overnight means that we’ll get a major/definitive trade agreement any time soon…or that it will change the growth trajectory in a meaningful manner going forward. Therefore, those betting that stock will go higher in a sustainable way are depending on TINA and FOMO (“there is no substitute” and the “fear of missing out.”) However, given that the stock market has done nothing for 20 months, it doesn’t look like investors are “missing out” on anything by keeping at least some money on the sidelines.

My central theme is still intact

We now have two days left in the month of August…and all of the markets could/should continue to be quite “thin”…so anything could happen between now and Friday’s close. However, I believe that if you dig down into what is being said…and more importantly, what is being done…on the trade front, this issue is not going to be resolved any time soon. This, in turn, goes back to my central theme right now: The global economy is slowing…and even though the U.S. economy is still growing nicely (due to the consumer), its rate of growth is definitely slowing. On top of this, earnings growth has ground to a halt…….With the stock market at the expensive end of the valuation spectrum and the (continuing) trade war creating further headwinds for both economic & earnings growth, it’s hard to provide a fundamental argument that says the stock market will trade back up to new all-time highs.

The odds are much better that the next 5% move will be to the downside.

Therefore, I believe the odds are higher that the next meaningful move in the stock market (of 5% or more) will be to the downside than it is the next 5% move will be to the upside.

After making a key "lower-high," Bitcoin is testing KEY support.

There’s not a whole lot more I can add on the last few days of the summer, so I thought I’d update the chart on Bitcoin…as it is breaking below the key support level I highlighted recently. As I mentioned back then, Bitcoin was testing its trend-line from March/April (when it began its strong bounce-back rally). It had also made a “lower-high” at the beginning of the month. Therefore, I said, if Bitcoin fell further, it would break below that multi-month trend-line…and follow that key “lower-high” with an important “lower-low”…and THAT would be very bearish for the cryptocurrency.

Having said this, the “lower-low” is only a very slight one so far, so if it can bounce strongly soon, I’ll take down the yellow warning flag I'm flying this morning very quickly. However, if it sees any further downside movement, that yellow warning flag will become a red one rather almost immediately.

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Posted to The Maley Report on Aug 29, 2019 — 9:08 AM
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  • {[]} — Marketfy Staff — Maven — Member
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