BIT Blog

Analysts' Insights

Analysts' Insights

Investors are still too BEARISH

1) According to CFTC data, Hedge Funds have shorted an enormous amount of SP500 futures, either as an outright bearish trade or to hedge their long stock exposure.

2) The position is so significant, that it resembles the positioning during the COVID Crisis (2020), the European Debt Crisis (2011), and the Flash Crash Crisis (2015). Eventually, Hedge Fund had to cover their positions, resulting in an aggressive rally.

3) Traders came up with all sorts of reasons why the market might be falling, such as inflation will stay high or the Debt Ceiling debate could derail stocks, profit margins would be declining, consumer spending could disappoint, and so on.

4) But the SP500 and the Nasdaq are higher by +10% and +22%, respectively. Also of note is that last year the SP500 declined by -20% and we have only seen back-to-back negatives years in 2000/2001/2002 and 1973/1974 -> that's only twice in 50 years.

5) So betting that 2023 is another negative year after the disastrous year of 2022 is statistically a low probability event.

6) There are $5.3 trillion in U.S. money market funds, an increase of $600 billion since November 2022. Before COVID, this number was "just" $3.6 trillion -> an increase of $1.7 trillion or +50%. Hence, there might be trillions available to invest in the stock market.

7) Of course, the negative argument appears to be that the Fed will keep hiking but the Year-on-Year CPI data is on now below the Fed Funds Rate and this signals that the Fed does not need to hike any further. Our model still indicates that CPI will fall towards 2-3% by the end of the year. Imagine Fed Fund then being at 5.5% -> that does not make sense.

8) Previously, we have shown that the Nasdaq is very correlated to Bitcoin and as the Nasdaq is making new one-year highs, Bitcoin prices have stalled. We warned about this but we also believe that this is only temporary as the Nasdaq/Bitcoin divergence currently implies Bitcoin should be trading at 31,600 (instead of 26,800 or +18% higher).

9) So can U.S. stocks make new all-time highs this year? Possible. If not this year, then maybe next year. But this would also mean that Bitcoin could resume its uptrend as well.

10) Good luck trading....

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