Market Digest: Crypto lagging behind stocks

While Bitcoin showed strong resilience against a falling stock market in April, there was a surprising lack of bids during the recovery rally.

This relative weakness was evident in the last few weeks, particularly in the previous week, when SPX and other indices reached new all-time highs, while crypto remained highly volatile.

Let’s take a rundown of the different markets and what they indicate for the upcoming weeks.

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Nothing ever happens

It is pretty interesting to consider that we began this week with what appears to be the start of World War 3 and concluded with new all-time highs in equities.

While bonds and the dollar suffer, it seems pretty apparent that no amount of conflicts, tariffs, or Trump tweets can ruin risk appetite for the stock market.

While the SPX is making new all-time highs, we are starting to see signs of complacency and greed, especially when examining volatility.

While the VIX curve is in a very classic bull-market contango, betting on a crash based on that is not the smartest trade, as there are many examples from past years where the market could grind calmly higher, and longer. You could remain solvent if trying to bet against it.

Also, looking at the ES futures’ current volatility, we can see that the volatility is low, but not at extremes.

A low VIX leads to an increased appetite for buying call options, which is evident across the board in indices and single-name stocks as well.

If I am being frank, there is one trade that has always gone poorly for me in the last three years: trying to short indices.

Although I am entering the next week with slightly more bearish sentiment, as it feels like the market is getting a little too complacent, I would only short obvious setups instead of trying to be overly aggressive.

 

Crypto lag

In last week’s issue, I discussed the long-term trade idea if Bitcoin reclaims $100,000.

This is what ultimately happened, as the price did not drop further in response to war-related news, which is a powerful overall signal.

Prices moved very quickly to the $106,000 region on Tuesday, which was essentially it for the rest of the week.

In my opinion, the reason why Bitcoin slowed down drastically and spent several days range-bound is elevated open interest. Still, most importantly, the significant negative skew in spot offers is preventing prices from going up.

I am still long and trying to give things a little bit more room while at the same time not giving back too much profit.

As bullish as I was at $100k, I felt that the move from the lows should result in new all-time highs.

Given the relative weakness in Bitcoin, with indicators pointing towards a downside, I would not be surprised to see a rotation back towards the value area low, which is around $102,000.

Coming into next week, I think my line in the sand for cutting longs and possibly flipping shorts is around $106,000.

End of the Dollar

Forex has been quite interesting this year with plenty of volatility.

Last week, the dollar broke multi-year lows as its safe-haven brand suffered greatly from tariffs and the overall weakening of the US brand this year.

I saw numerous Twitter posts and articles about the death of the dollar, with last week closing in a bearish engulfing pattern.

With the peak of bearish sentiment and the price approaching a high-volume node that can act as support, I would not be surprised to see a possible short squeeze soon.

This idea is also strengthened by the fact that speculators are almost as net-long as they have been in the past three years.

When trying to bet on the strength of the dollar, shorting the Euro makes the most sense, as it is the highest component of the dollar index. However, I am also keeping an eye on the Canadian dollar, which already showed some weakness on Friday with the news of the tariffs.