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Chart Advisor: Maybe Temporary

Investopedia

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Investopedia
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Wednesday, May 19th, 2021

1/ Investors give Fed benefit of the doubt 

2/ US Dollar still on a downward trend 

3/ Did Bitcoin do that? 

4/ The bottom line

1/ Investors give Fed benefit of the doubt 

Traders expected bad news today even before the markets opened. Futures markets priced the major indexes more than one percent lower before the opening bell. But investors seemed to want to take advantage of buying the lower prices as stocks moved cautiously higher from the open. 

The chart below displays how Invesco’s Nasdaq 100 ETF (QQQ), Microsoft (MSFT) and Apple (AAPL) shares responded similarly throughout the day. Investors and traders seemed to be anticipating bad news to be revealed from the minutes taken at the most recent of the Federal Reserve’s Open Market Committee (FOMC) meeting. 

What analysts were likely looking for was disagreement among committee members, or any clue that the troubles with inflation were serious enough to warrant strategy changes to investment strategies of professional fund managers. Up until today, the markets had acted as if investors simply didn’t believe the Fed statements that the current levels of inflation are likely transitory.  

This chart however suggests that investors didn’t see serious disagreement in the discussions of FOMC members captured by the minutes. That prices continued to rebound is evidence that investors may be willing to take the Fed’s statements on faith. Generally speaking, that is a rather bullish indication of sentiment

2/ US Dollar Still on a Downward Trend 

The second chart today shows two funds from Invesco. The first one, displayed by the green line, is the US Dollar Index Bullish Fund (UUP). The second, displayed by the blue line, is the CurrencyShares Euro Trust (FXE). Because the Euro and the U.S. Dollar make up more than 60% of the calculation of each other’s index value, it isn’t a big surprise to see them inversely correlated

The surprising moment of this chart is the final change in these two lines. While the Dollar moved higher and the Euro moved lower in today’s trading session, currency traders didn’t generate the same enthusiasm about the FOMC minutes. The moves in these currencies are still well within the currently trending ranges. It is as if currency traders are waiting for better evidence that the Fed knows what it is talking about. 

3/ Did Bitcoin do That? 

The twitter-driven headlines about Elon Musk and his varying attitudes on cryptocurrency issues have, for better or worse, connected the price of Tesla (TSLA) shares and the price of Bitcoin. The company’s investment in the flagship crypto is clearly a line item on many an analyst’s valuation spreadsheet these days. 

The following chart compares how the decline of prices for Bitcoin as priced in U.S. Dollars (BTCUSD) in recent days has corresponded with a similar decline in TSLA share prices. While other factors are surely at play here, it is interesting to note that Bitcoin’s 50% fall was tracked by a 25% drop in TSLA shares. Perhaps Mr. Musk realized the company was taking on unnecessary exposure to the volatile asset class in this way when he announced that Bitcoin would no longer be accepted in exchange for Tesla vehicles. 

4/ The Bottom Line 

Stock prices opened low but slowly gained back lost ground on a day when investor seemed willing to give the Fed the benefit of the doubt. TSLA shares have fallen drastically along with Bitcoin’s recent fall in price. 

Originally posted on 19th May, 2021

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