Bitcoin is Getting Extremely Oversold and Over-hated
Will a pullback in the stretched tech sector lead to a "rotation" in the other direction?
The recent rally in the chip stocks is taking it to a level that is extremely similar to what we saw in March of 2000…just as the group was experiencing a major top.
The private credit market is seeing some renewed stress…much like we thought it would in June.
If the tech sector sees a pullback, it could/should give the crypto market some relief…given that Bitcoin has become very oversold and sentiment has become very bearish. (“Rotation” in the other direction soon…out of tech and into Bitcoin?)
The rally in the stock market lost some of its momentum yesterday, but it was still able to finish the day in the green. After a strong bounce over the previous seven weeks, the software stocks finally saw a pullback, but this was offset by yet another positive day for the chip stocks. In fact, the SOX semiconductor Index jumped another 5.8%...and closed on its highs for the day. This means that the rally off the late-March lows has now reached a whopping 92% over the past 9.5 weeks! So, the demand for this key group remains quite robust.
We do need to point out that the SOX is now reaching the kind of overbought levels that it reached at the top of the internet bubble of 2000. This reading has now 88.18 vs. the 89.04 it saw in March of 2000…and this index looking higher once again this morning, its overbought condition is basically going to reach the same level it did back in 2000 this morning.
Of course, this does not mean that the group is about to make a significant top right now. In fact, it doesn’t even mean that it will even make a minor top…and thus take a breather over just the near-term. However, it does show that this all-important group is approaching the kind of extremely stretched levels on a technical basis that has been followed by pullbacks in the past, so investors and traders should take notice. (First chart below.)
That said, the NDX futures are trading higher again this morning, so even though the SPX futures are trading slightly lower, investors don’t seem very worried about these issues. However, with some new (negative) news on the private credit front, there are some OTHER reasons to think that the market is ready for a pullback at some point soon…..Cliffwater has capped the redemptions for their flagship credit fund at 5%...and Partners Group has done the same. (The former said they’ve received 17% redemptions…while the latter says their redemptions were almost 10%.)….So, the issue of private credit is rearing its ugly head again…must like we thought it would in June.
This has stocks like Blackstone (BX), KKR (KKR), and Blue Owl (OWL) trading lower again this morning. The bounce in these stocks off their March lows had been pretty feeble compared to the rest of the stock market, so this renewed weakness is another reason to be careful about chasing the stock market rally over the near-term…given the parabolic nature of the rally for many stocks. (Marvel’s 32% jump on a merely quip from Jensen Huang is one thing…but a 48% jump in Victoria’s Secret takes it to a whole new level!)
If (repeat, IF) we finally do see a pullback in the stock market…led by a pullback in the tech sector…it should be something that will give Bitcoin some relief. There has been a lot of talk about how Bitcoin has become a source of funds for investors to buy the chips stocks and other AI related stocks. So, if the group finally does take a breather, this could/should help the crypto market see a bounce.
The decline of the past few weeks in Bitcoin has taken it to an oversold level…and has also taken sentiment to an extremely low level…with the percentage of bulls among the futures traders falling to just 10%. Yes, it has become more oversold before it has bottomed in the past…but not a lot more oversold. Thus, Bitcoin is getting ripe for a bounce soon…and it wouldn’t surprise us if the catalyst for such a bounce came from a breather in the tech sector. (Second chart below.)
