Markets Love Round Numbers – 50k, 30k, 4k, 20, 1.25

Humans have biases. One of them is a fascination with round numbers. Because markets are a manifestation of mass psychology, it is not surprising when a financial instrument or index becomes fixated on a round number as one approaches. Currently there are several to attract the market’s focus: $50,000, 30,000, 4,000, 20 and 1.25%.

Ipad, Online, Tablet, Internet, Screen, Digital

Image Source: Pixabay

The big news of this morning – one that triggered an alert on my phone – was that bitcoin crossed the $50,000 level. It didn’t last long (at least on the first pass), but it was sufficient to further engross investors who had been eyeing the cryptocurrency’s spectacular rise. I discussed this topic in an Asian radio interview on Monday morning and said that a rise to 50k seemed inevitable. Investors are fascinated with bitcoin, and perhaps the best stock promoter the world has ever seen is a public and vocal advocate. But I don’t draw any real conclusions from a given number in bitcoin – only that it is a barometer for the level of speculation in the financial system. There is a speculative fervor in this product, and $50,000 was merely the next milestone.

Of a similar nature, the S&P 500 Index (SPX) is approaching 4,000. With that figure less than 1.5% away, it also appears to be an inevitability. I suspect that I will get another alert on my phone in the coming days. Similar to this morning’s bitcoin alert, it is more about becoming another milestone of the risk-on nature of most financial markets rather than a meaningful achievement in its own right.

Two numbers that are tied tightly to SPX are the 20 level of VIX and the 1.25% yield on the 10-year Treasury note. As part of the last-minute buy program that pushed a flat market higher in the last 20 minutes of last Friday’s trading day, VIX slipped below 20. This didn’t trigger an alert on my phone, but I saw highlighted headlines come across my news services. I personally don’t ascribe much meaning to a specific level of one particular volatility measure, but I have heard numerous portfolio managers claim that they are looking for a sub-20 VIX as further affirmation of the bull market. That said, none are options people and I can’t imagine that they’re not already largely invested, but if I take them at their word, at least some will use the declining VIX as a reason to put more money into the markets. With VIX bouncing by about 10% this morning, it seems clearer that the dip was more about short-term trading ahead of a long weekend than a meaningful move.

1 2 3
View single page >> |


Trading in Bitcoin futures is especially risky and is only for clients with a high risk tolerance and the financial ability to sustain losses. More information ...

How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.