Daily Analysis: Continued Bond Rout Weighs on Stocks amid Crypto Bloodbath

Friday Market Recap

Asset Current Value Daily Change
S&P 500 2762 -2.12%
DAX 12,785 -1.65%
WTI Crude Oil 65.14 -1.14%
GOLD 1333.00 -0.98%
Bitcoin 8505 -4.12%
EUR/USD 1.2461 -0.32%

A very busy day indeed… Traditional financial markets had one their busiest days in recent memory, as stock markets spiraled lower throughout the session, with the major US indices losing around 4% so far from their all-time highs set in January. European and Asian stocks continued lower too, and that lack of rotation could mean that more downside is ahead of us.

S&P 500 Futures, 4-Hour Chart

Behind the fall, the most important reason is the accelerating bond sell-off that got another boost form Janet Yellen’s hawkish last Fed-statement that sparked a jump in yields across the curve. As today’s comments by the Fed member Kaplan caused another wave of selling, we would expect a heightened focus on the central bank’s activities at least until Jerome Powell first words on the future of the bank’s monetary policies.

The sell-off was also worsened by the less than stellar earnings reports from Google parent Alphabet and Apple, and even the blow-out numbers posted by Amazon weren’t enough to turn the tide. The pronounced weakness of Chinese assets is also weighing on sentiment, and given the size of the credit bubble in the country, investors should pay special attention to the developments.

The Volatility Index (VIX) is another major risk factor, as the short-volatility strategies that have been dominant in institutional investing lately could quickly implode in the case of a serious equity correction, and in turn, they could even lead to a crash if all players run to the exits at the same time.

VIX, 4-Hour Chart

Commodities and currencies had a hectic but less dramatic day, as the Dollar gained back some of the lost ground of the recent weeks, while gold received a slight blow from the jump in yields, and oil retreated from its highs again.

That said, the EUR/USD pair is still at $1.2450, gold just pulled back to $1335, while the more volatile commodity-related currencies, such as the Aussie and the Canadian Dollar lost a bit more than 1% today compared to the Greenback.

EUR/USD, 4-Hour Chart Analysis

Cryptocurrencies

The crypto segment was in full crash mode today, at least as far as the early part of the session is concerned. The major coins all tested or breached their previous correction lows, losing more than 20% on the day and being cut at least by half compared to the all-time highs.

BTC/USD, Daily Chart Analysis

As the largest coins all followed the movements of BTC, the turning point came when the most valuable coin hit the $7650 support after an obvious forced selling episode. BTC surged 15% off the lows, with some of the altcoins scoring even larger gains, and with the long-term setups in the segment being oversold, these could mark the end of the current cycle for most of the digital currencies.

We will cover the sector’s long term outlook in our usual weekly piece during the weekend.

Featured image from Shutterstock

Author:
Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.
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