Morning Comment: Focusing on LT rates & the semis.....Will Bitcoin hold?

It’s amazing. The stock market got hit hard yesterday…and every bull on Wall Street tried to say that they saw it coming. (In other words, they said the same thing they always say when these moves take place.) That said, most of the perma-bulls did get one thing right, the decline we’ve seen so far is not a major one at all. Sure, yesterday’s drop was a big one for a single day, but the S&P stands only 4% below it all-time highs! Even the Nasdaq…which is about 8% below its own highs…has still not declined to the same degree it did in late February/early March of this year…and September of last year. On both of those occasions, the Nasdaq fell into official correction territory before it bottomed.

Therefore, the good news is that the stock market’s decline has not been very significant…and this could merely be the kind of normal/healthy pull-back that all bull markets see from time to time. The bad news is that it could (and probably should) fall further before the market bottoms-out. No, that doesn’t mean it cannot bounce for a couple of days. However, despite what several pundits tried to claim yesterday, there wasn’t any “panic” in the marketplace…and there wasn’t any “capitulation”…which is something we usually see at a bottom of some importance.

When we see panic or capitulation, it always includes a huge jump in volume. That has not taken place at all this week. The volume on the composite volume was over 3.2bn shares…which is nowhere near the levels we’ve seen at the panic lows of last March…when those number reached 7bn shares several times! Also, although the volume in the QQQ Nasdaq 100 ETF reached 89 million shares (which is high for the past few weeks), that is s much lower number than we’ve seen at the low of the last three corrections in the QQQ (in Feb/March of this year, last September, and March of last year)…when the volume rose well above 125 million shares.

No, we do not have to see a “capitulation” move in order to form a compelling bottom, but the record shows that we usually do see more fear in the marketplace than we’ve seen so far. And one of the best indicators that “fear” is getting high…is a bigger increase in volume than we’ve seen so far.

The S&P 500 closed right on its 50 DMA of 4059. That level is also where the trend-line from March 2020 comes-in. Therefore, this is going to be very important support over the near-term. The futures are trading a bit higher as we write, so it looks like the market wants to steady itself today. However, the yield on the 10yr note has moved higher again this morning…and is now within a whisker of 1.70%. Of course, the closing high this year is 1.74%...so it will take a break above that level before it becomes a compelling move on a technical basis, but it’s still something that could keep any bounce a very short-lived one. (1st chart attached below.)

(BTW, we heard several pundits try to say that the bond market didn’t move much yesterday in reaction the stronger-than-expected CPI data. We don’t know how in the world they could say this. Sure, it wasn’t the biggest one-day rise in rates this year, but it was certainly in the top 10%!)

Anyway, on top of watching the yield on the 10yr note, we’ll be keeping a very close eye on the two technology related index/ETFs we’ve been harping on for several weeks now. First and foremost, is the SMH semiconductor ETF. This is THE KEY leadership group in the broad tech sector…and the decline over the past few days has taken it below its trend-line from March 2020.

That is a bearish development, but the next support level is even more important for the chip stocks. Any meaningful drop below the March lows of $215 will give the SMH an important “lower-low”. The combination of a broken trend-line and a key “lower-low” will confirm a change in trend for this all-important leadership group…IF it takes place.……We’re still 3.5% above that level, so we don’t want to jump the gun…especially since the SMH is trading slightly higher in pre-market trading this morning. However, if it breaks below that $215 low any time in the coming days and weeks, it’s going to raise a big red flag on the chip stocks. Since this group has been such an important leadership group for the broad tech sector AND the broad stock market as well…a break below that level on the SMH should have wide ranging implications. (2nd chart below)

The other index, of course, is the tech laden Nasdaq Composite. It did indeed break meaningfully below its 100 DMA yesterday. Since that moving average has provided rock-solid support on four occasions since last September, this breakdown raises a yellow flag. However, like it is with the SMH, we’re going to have to see it break meaningfully below its March lows of 12,600 before that flag would become a red one. (Third chart below)

Well, we have provided a lot of charts today, but we cannot end our comment this morning without talking about Bitcoin. As we’re sure you’ve heard by now, this cryptocurrency was hit hard overnight after Elon Musk declared that Tesla would no longer accept Bitcoin for payment on their vehicles. This caused Bitcoin to fall 15% at its worst level in overnight trading. It has bounced off those lows, but it is still down over 7% as we write. It has also created the first “lower-high” in Bitcoin in over a year.

The level we’ll be watching now is the $48,100 level. That was the closing lows in April. Therefore, any significant break below that level would follow this week’s “lower-high” with a key “lower-low”…which would be quite bearish on a technical basis. HOWEVER, it will be critical for investors and traders alike to wait to see if we do indeed get a “lower-low” before they get too negative on Bitcoin on a near-term basis. The reason we highlight this is because some of the newer cryptocurrencies have been kicked in the teeth this week. As traders move away from those “lottery tickets,” they’ll focus once again on the more stable cryptocurrencies. Therefore, we should not assume that an important breakdown in Bitcoin is actually going to take place right now.





Matthew J. Maley

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

TheMaleyReport.com

275 Grove St. Suite 2-400

Newton, MA 02466

617-663-5381

mmaley@millertabak.com


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on May 13, 2021 — 9:05 AM

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