NIKKEI has fallen at an incredible rate since Monday morning in Asia. Last Friday, VIX rose 40%, which I found unusual. Also, there was a lot of noise over the weekend due to war issues. I left this note in the community at the time.
Here’s what I’m thinking right now:
I don’t like the way the VIX rose on Friday heading into the weekend. Despite falling about 7 points from its high point, In these situations, there is a possibility of further stock declines on Monday. There’s no 100% certainty about what will happen, but I’m being cautious.
Also BTC IV was up over 5% on Sunday night. Put options were the main volume and I thought someone was buying put options. Since then BTC has dropped rapidly from 60k to 49k.
VIX has risen to 60+ and ES has shown a crazy decline. The Korean stock market has also entered the circuit breaker. All stock markets around the world have fallen into great confusion. The implied correlation coefficient is still high, so considering seasonality, etc., the stock market in August and September is likely to be unstable.
One of the major factors influencing the current stock market decline appears to be CTA selling. They are currently reporting losses and there may be more selling in line with trend following strategies. I think ES is close to the bottom but there are several unsettling factors so I expect it will take a little longer for people to fully turn to optimism. The stock market will be most excited about the NVDA earnings announcement on August 28th. I still believe we are in a bull market.
It would be good if there was a quick rebound.
Last week, Japan’s interest rate hike was so unlikely that no one expected it because Japan’s GDP is negative. It surprised the market that much. They decided to defend the exchange rate. There is a possibility that a lot of yen carry trades have been unwinding due to the effect of last week’s interest rate hike. If that stops, the potential selling is likely to decrease. In the worst case scenario, since the BOJ’s long-term direction is to raise interest rates, there is a possibility that they will choose to reduce their positions in advance in preparation for that time. Currently, the market seems to be in a state where it is difficult to easily turn to buying amid various uncertainties.
BOJ finally announced that they will stop raising interest rates, which is effectively a BOJ PUT. This is very bullish news for the market. BTC and ES showed an upward movement on this news. It is clear that the market will continue to be interested in the Yen carry trade.
The ISM services PMI released on Monday evening came in higher than expected, dismissing the possibility of an over-exaggerated recession in the market. I have long thought this was over-exaggerated and have shared that view. It is clear that recessions are very tricky to define. With the interest rate cut approaching, it is a time when reactions to macro data will be sensitive. I think you may find the notes I shared with the community helpful.
… Whether the current recession fears are excessive …
I still think there will be no recession in 2024. Of course, keep in mind that I could be wrong. The market will now expect a 50bps rate cut. Of course, I think the current situation is excessive. The service PMI, which will be released next Monday, will tell us whether the movement last week was excessive. If the recession fears are excessive and can be reversed quickly, the market could rise again.
There are two indicators that I think are not in a recession right now. If we were in a recession, we would normally see a higher default rate. But that is not happening at all. Also, GDP Now was reported at 2.9%. This is constantly changing data, but the current numbers still show that we are not in a recession.
That’s why the employment data coming out today could potentially shake up the markets.
BTC also showed a strong decline due to Black Monday. DVOL rose to 92, a new high for the year. The decline was strong and steep. However, it is rising from 49K and has recovered the July low of 53K. Considering macro, seasonality, and market turmoil, August and September are still likely to be unstable, but this structure looks positive. BTC could see more declines from here, but 49K feels close to the bottom assuming we are in a bull market. Here’s why:
A significant amount of long positions between 49-50K have been liquidated and the daily change in open interest is close to 20%. The market is now cleared and appears to be free of bubbles.
According to Glassnode, most of the recent buyers and short-term holders seem to be in a loss position, and the NVT signal shows that the BTC price is significantly oversold. I am not sure where the bottom is if BTC is not near the bottom in a bull market right now. If BTC is still extremely weak despite this, I think we can consider that we have entered a bear market.
NFA DYOR
<Source : TradingView, Velo, Deribit, Glassnode, BitcoinMagazinePro, Kaiko, Coinglass, Atlanta Fed, Apollo Slok, Menthor Q, DB News, Investing.com>
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