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Why Monday’s sell-off in the stock market could be the start of the next phase of the decline

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Several strategists told MarketWatch that Monday’s aggressive sell-off could be the start of the next phase of decline for stocks as complacency takes hold in the markets after a stellar October and November.

In a note to clients on Monday, Jonathan Krinsky, chief technical strategist at BTIG, said US stocks are poised to fall after the S&P 500.
SPX,
-1.79%

It bounced off the latest resistance level, which coincided with the index’s 200-day moving average, which is a key technical level for the asset. Krinsky explained the pattern in the chart embedded below.

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BTIG

“Investors are becoming very complacent, as SPX is pulling back from year-long downtrend resistance like it did in March and August,” Krinsky said in comments emailed to MarketWatch.

Other market strategists agreed with this warning, but explained that the complacency was the result of the strong recovery in the market over the past six weeks.

The recent decline in stocks is “a sign that the market is fragile, and it makes sense as well given the longevity and comfortable scale of the recovery,” said Katie Stockton, strategist at Fairlead Strategies.

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Ahead of Monday’s session, the S&P 500 was up more than 16% from its intra-day lows that it reached on Oct. 13, the day stocks took a historic turnaround after the release of Higher-than-expected inflation data from September.

After releasing the November jobs report on Friday, stocks fell again on Monday, with the S&P 500 and Nasdaq Composite
COMP,
-11.01%

marking its biggest decline since November 9, according to market data from Dow Jones. Dow Jones Industrial Average
DJIA,
-0.26%

and Russell 2000
rut,
-2.78%

It also sold out sharply.

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We see: Here’s what history says about the stock market’s performance in December

VIX reflects a false sense of security

Traders’ sense of security is reflected in the CBOE Volatility Index
VIX,
+8.87%
And the
Also known as the “VIX,” or Wall Street’s “fear gauge,” according to Nicholas Colas, co-founder of DataTrek Research.

Often a contra-indicator, the VIX hitting a level below 20 should be a warning sign to investors that the stock was vulnerable to selling, Colas told MarketWatch in an email.

“Markets have been pretty complacent about the uncertainty around policy and what 2023 holds for corporate earnings. When we get to sub-20 of the VIX, it won’t take much for the markets to roll over,” Colas said in an email.

But as Colas pointed out, historical patterns helped influence the significantly lower level of the VIX over the past two weeks.

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In theory, seasonal patterns dictate that the rally in stocks should continue through the end of the year, As MarketWatch reported last week. Stocks typically rally in December as liquidity thins and traders avoid opening new positions, allowing for what some on Wall Street have called a “Santa Claus rebound.”

Whether this pattern holds this year is more of a mystery.

As Colas explained in a note to clients Monday, the main concern for stocks right now is that investors ignore the risks of further downward revisions to corporate earnings expectations, as well as any other potential setback from the looming recession. Many economists see probably.

Certainly, the economic data released in recent days points to a relatively strong US economy in the fourth quarter. Jobs data released on Friday showed that the US economy continued to add jobs at a strong rate in November, despite reports of large-scale layoffs by technology companies and banks.

The ISM gauge of service sector activity released on Monday jolted the markets as it came in stronger than expected. All of this data has fueled fears that the Federal Reserve will need to raise interest rates more aggressively if it hopes to succeed in its battle against inflation.

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It is possible, in theory, that rate hikes could lead to a “hard landing” for the economy.

Has the decline in Treasury yields reached a point of diminishing returns?

As BTIG’s Krinsky points out, complacency is not unique to the stock markets. In a recent note to clients, he said bond yields also fell more than BTIG expected, and perhaps more than justified by the uncertain outlook for both monetary policy and the economy.

Since the yield on 10-year Treasury notes
TMUBMUSD10Y,
3.571%

It peaked above 4.2% in October, and a drop in Treasury yields helped support a range of risky assets, including equities. and unwanted bonds. The yield on the 10-year note, which Wall Street considers the “risk-free rate” at which stocks are valued, was just shy of 3.6% late Monday. Yields move inversely to bond prices

Even if yields continue to fall, Kerensky explained, the dynamic in which lower Treasury yields help boost stock prices may have reached a point of diminishing returns.

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“While we think this level is holding, we wonder if a break below 3.50% would be considered stock-friendly…[w]Kerensky said in a note to clients.

Wall Street economists expect the recession to begin sometime in 2023, a forecast he supports A sharply inverted Treasury yield curve, which is seen as a reliable indicator of a recession.

All this prompts investors to closely monitor US economic data for the rest of the week. Analysts said the November producer price growth report due on Friday could be another major catalyst for the markets.

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MicroStrategy is at its lowest level since 2020 after the sales were revealed

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(Bloomberg) — Shares of MicroStrategy touched their lowest level since August 2020 after the enterprise software company, which in recent years has been known as the largest buyer of bitcoin, revealed its first sale of the token.

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The stock fell 1.1 percent to $136.63 on Thursday, down 75 percent this year. Bitcoin rose less than 1% to around $16,590 and is believed to have fallen 64% since the start of the year.

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In a filing on Wednesday, MicroStrategy said it acquired approximately 2,395 Bitcoin between the beginning of November and December 21 through its subsidiary MacroStrategy, and paid out approximately $42.8 million in cash. It then sold 704 of the tokens on Dec. 22 for a total of about $11.8 million, citing tax purposes, before buying another 810 of them two days later.

Matt Malley, chief market strategist for Miller Tabak + Co. Step down as CEO. This news means they don’t seem to want to do that anytime soon.”

Overall, MicroStrategy held about 132,500 bitcoins worth over $4 billion USD as of December 27th. The company paid an average purchase price of $30,397 per bitcoin.

“Given MicroStrategy’s $2.4 billion in leverage, we believe the company may have a lot of leverage over Bitcoin, and may face some liquidity risk,” Jefferies analyst Brent Thiel wrote in a note on Wednesday. Thill has an “underperform” rating on the stock and a price target of $110.

Over the years of the pandemic, MicroStrategy has become well known for its Bitcoin takeovers, largely led by Saylor. Earlier this year, Saylor stepped down from that role and now serves as CEO at the company and continues to lead its bitcoin strategy.

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MicroStrategy was trading around $120 before Saylor first announced the company’s Bitcoin purchases in 2020. The stock reached an all-time high of $1,315 in February 2021.

(Updates to include the stock’s closing price in the second paragraph.)

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Bankman-Fried May File Petition in New York Federal Court Next Week Before Judge Louis Kaplan By Cointelegraph

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Former FTX CEO Sam Bankman-Fried is set to appear in court on the afternoon of January 3 to enter a lawsuit over two counts of wire fraud and six counts of conspiracy against him related to the collapse of cryptocurrency exchange FTX, according to Reuters. mentioned on December 28, citing court records. Bankman-Fried will appear before District Judge Lewis Kaplan in Manhattan.

Judge Kaplan was appointed to hear the case on December 27 after the original judge in the case, Ronnie Abrams, Resigned herself because of connections between FTX and the law firm Davis Polk & Wardwell, where her husband is a partner. The company provided advisory services to FTX in 2021.