Bitcoin Soars While Stocks Trade Flat

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Bitcoin Soars While Stocks Trade Flat

Major Moves

When I look at a bitcoin chart, it reminds me of the fourth quarter of 2017, when the cryptocurrency rose from $3,000 to $19,666. It seemed like a textbook bubble at the time, as investors, scared of losing out, poured into the digital asset, driving prices even higher.

Since Investopedia Editor in Chief Caleb Silver last wrote on bitcoin in the Market Sum last Tuesday, the price has risen another 50% as speculators continue to pour money into the virtual currency. I believe the latest spike is related to Facebook, Inc.’s (FB) statement that it would join the realm of virtual currencies with “Libra.”

Despite the fact that Libra is still a long way off, it has given crypto-believers a lift, pushing bitcoin back over $14,000 today. However, I’m curious how much of the current rise in bitcoin is due to a simultaneous movement in favor of safe-haven currencies such as the Japanese yen and Swiss franc.

Rising geopolitical dangers, like as mounting tensions between the United States and Iran, have historically boosted these safe havens, which might benefit bitcoin as well. I also believe that since interest in bitcoin has been so strong in China and Hong Kong, the latest demonstrations and uncertainties have considerably increased demand.

Because we have so little historical data on cryptocurrencies to help our forecasts, this will be an interesting chart to follow for the time being. Technically, this trend is so near to a vertical asymptote that forecasts are tough, but as it approaches the past highs, I believe investors should be wary of a rapid reversal as traders who were holding when the price crashed in 2018 begin recouping their losses by selling.

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S&P 500

After yesterday’s selling, the S&P 500’s bullish breakthrough has stalled. Small-cap stock weakness has persisted over the previous week, indicating that the S&P 500 index’s temporary fresh highs may not yet represent a legitimate breakout.

President Trump hinted today at a “Plan B” that would include billions more in tariffs on Chinese products imposed on US firms and importers if progress is not achieved in this week’s G-20 trade discussions. Investors may have dismissed the danger since there were no more specifics; nevertheless, if there is any more negative news this week, I anticipate that risk to encourage sales.

On the plus side, FedEx Corporation’s (FDX) somewhat better-than-expected earnings release yesterday afternoon may assist to bolster transportation equities. If a rebound in transportation and shipping equities occurs, it might assist to improve mood in July.

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Risk Indicators – Earnings Reactions Can Be Misleading

The Paychex, Inc. (PAYX) report this morning disappointed me in terms of risk. The company fell short of earnings forecasts and cut the projection for profits growth over the next fiscal year from 9.2% to 8% to 9%, down from 9.2%. At today’s closing, the stock was down more than 3.5%.

However, I would argue that this does not seem to be a concerning leading sign for the economy or overall employment growth. Paychex has been generating a long-term bearish divergence using the moving average convergence divergence (MACD) indicator, as seen in the chart below, which normally implies that the stock was momentarily overbought. It doesn’t take much to offer investors a cause to sell in this circumstance.

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Furthermore, a stock in the employment sector growing by 8% to 9% would still be a highly strong indication for the economy. Perhaps the pace of growth is decreasing, but in absolute terms, these are the kinds of figures we would anticipate from a healthy economy.

When paired with Micron Technology, Inc.’s (MU) surprise upbeat earnings release, the FedEx and Paychex numbers still hint to an economy that is far from in crisis. In the case of Micron, the business raised its projection for the remainder of the year, which could help bring tech equities, particularly semiconductors, back into uptrends.

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Bottom Line – Earnings Overshadowed by Trade Talks

Some early quarterly reports will continue to come in until the official start of the quarterly season in July, and what we’ve seen so far seems promising. As growth slows, there have been a few disappointments, but even equities with large negative swings, such as General Mills, Inc. (GIS) and Paychex, are still demonstrating extremely good fundamental growth rates.

A reasonable profits forecast is positive, but it also implies that much depends on the outcome of trade discussions with China. Investors could expect to learn more as we approach the weekend, which will likely keep market indices range bound on Thursday.

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