What Me, Hedge?

We deemed it inevitable about six weeks ago, and the S&P 500 Index (SPX) broke through the 4,000 level today. At the time, we noted that traders can be fixated upon round numbers and that once they appear on the horizon, those numbers often become self-fulfilling targets. We noted that 4,000 was one of a series of round numbers that traders were fixated upon. Interestingly, of the 5 numbers that we noted, SPX was the last to reach the target. It is fascinating to see what has become of the key products in that time frame and to consider what this means for traders and investors in the weeks to come. 

Bitcoin, unsurprisingly, was the star. We have long asserted that Bitcoin is a key barometer of speculation and that there was no reason that the speculative fervor surrounding the cryptocurrency was ready to break. The speculative fervor hasn’t broken, and the new round number fixation is $60,000.Yes, bitcoin has rallied about 20% in six weeks!

An even more stunning market move over the past six weeks is to be seen in 10-year US Treasury yields. At the time, investors were contemplating the effect of a rise from 1% to 1.25%.  We shrugged off the idea that the Federal Reserve would be concerned with a relatively minor bump in long-term rates, and bond traders seem to have agreed. We have since blown through that level to test the 1.75% mark, resulting in one of the worst quarters for 10-year notes in quite some time. The magnitude of the price move was not nearly as great as that seen in bitcoin, but bear in mind that the Treasury market is magnitudes larger than the cryptocurrency market. Treasury rates are a key component in a wide range of investment decisions.

Yet after a few hiccups, stock indices resumed their advances even as bond yields rose. The market leadership may have changed, favoring banks and cyclical stocks over high-flying tech names, but the broader upward trends remained largely in place. Now that we have achieved yet another round number goal for the stock market, we need to look for clues about what could drive the indices in the weeks to come. As a long-time options trader, I look to the volatility markets for guidance.

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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 ...

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