Client Newsletter Example: Important Macro Market Edition - Here's What the Major Indexes, Treasury Yields, and Cryptos are Telling Us

Published on March 22, 2024 @ 6:24am

Big swings are becoming the name of the game with just about everything out there. All of the major indexes gapped higher yesterday but struggled to follow through. Today, they're somewhat wavering to do the same as Treasury yields remain somewhat elevated. Here's an important macro look at all of it, along with updates on the extremely volatile Bitcoin and Ethereum:

Important Macro Market Edition - Here's What the Major Indexes, Treasury Yields, and Cryptos are Telling Us

Whipsaws galore lately as three of the four major indexes continue to fight to make new all-time highs. It's now becoming more of a game of big swings and big moves for just about everything out there these days, and it's all coming at a time when the markets are starting to get pretty pricey.

Then again, everything out there these days has gotten far pricier since the whole Covid debacle, but neither the ongoing asset price bubble nor the ongoing whipsaw behavior of these markets appears to be subsiding anytime soon.

This not only poses risk to short-term bulls around current levels, but it's also making it awfully tough for firms like ours to find much of anything that looks undervalued around current market levels. Nevertheless, we remain diligent and vigilant, continue to hunt for ideas with a realistic and promising future, and do it all with the macro market environment in mind.

With that, you've got one side of these markets about as bullish as bullish can get, one that continues to fixate on the technicals, and nothing more than a strong economy on the verge of next-generation technology implementation (AI). The other side, however, strongly believes stocks are getting too expensive, inflation is still an issue, and Treasury yields are still offering fixed-income investors reasonable enough returns without any risk whatsoever.

Where do we stand? Literally right in the middle - making arguments for both sides of the equation. However, until something surfaces on the weekly charts to suggest otherwise, we're still going to stick with the notion that despite all of the ongoing whipsaws that continue to take place out there from day-to-day and week-to-week, these markets can still end up moving net higher.

This is why we're just not interested in shorting these markets yet. Certain individual companies that have gotten too expensive? Sure. Arm Holdings plc (ARM) and General Electric Company (GE) are two that come to mind right now, but we're still more fixated on finding GARP (growth at a reasonable price) than we are anything else.

Right now, however, we want to see what happens with the major indexes over the next several trading days before we actually decide to put anything new out there.

Why? Provided below are monthly charts of the NASDAQ 100 and S&P 500, along with a monthly chart of the 30-Year Treasury Yield. As you can see, these markets have ripped higher in the face of yields grinding higher over the last four months. And, it that may very well continue for a bit longer.

However, when you look closely here at arguably the three most important financial instruments to these markets right now, you'll notice that ever since 2018, when the markets' seemingly historical behavior finally decided to change to one of more whipsaws and volatility, there hasn't been one major market run on the NASDAQ 100 or S&P 500 that has lasted for more than five consecutive months. And guess what? We're in the fifth month now.

Additionally, when we take a step back and assess the longer-term landscape of Treasury yields, there's a very high likelihood that the 30-year yield may well find its way back above its 3X3 DMA (dark blue curved line), which currently sits at 4.518%, before it could finally start to back off in a big way again.

When we tie all of this together, the bottom line is even though the NASDAQ 100 and S&P 500 "could" make more new all-time highs by the end of this month, the probability of a big pullback as soon as next month is very high. Maybe that will have something to do with rising yields again or maybe it will be something else, but if recent history is worth anything, we should see these markets pull back nicely soon enough.

As for the ongoing hyper-volatility in Bitcoin and Ethereum, these too have made incredible runs for months now. And, while their next very near-term move could be any kind, we're still convinced both are going to find higher levels before we'll have to determine whether or not to keep them both or back out of them and wait for potentially lower reentry levels.

Provided here are daily charts of both, and as you can see, they're far more volatile than that of the major indexes. However, their returns since last year's bottom have also dramatically outperformed that of the NASDAQ 100 and S&P 500.

The bottom line is we like both on a very long-term basis, but the issue right now is far more about whether or not they're going to move sharply lower again before finding new all-time highs, or if they're simply going to make new all-time highs before the end of the month.

While we do believe the latter is very possible, we first want to see both find their way back above their 3X3 DMAs (dark blue curved lines). Then, we'll see how they're both behaving, and go from there. There's no question we will continue to want to have exposure to both, but it's going to be more of a matter of when and how much. For now, however, we'll stick with both for the time being, and continue to maintain exposure to the 2X leveraged BITX.

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John Monroe - Senior Editor and Analyst