Golden Crosses Abound  —  Markets and BTC Rally- Hydra X
Market Thoughts: Golden Crosses Abound — Markets and BTC Rally

April 8, 2019

Stock markets continue to chug higher, with the major US indices all ~2% or less from their all time highs. Three weeks ago, we noted that — despite our scepticism — we seemed to be looking at markets that “want to push higher across the board… despite the overhang of earnings, macro economy news, North Korea, and ongoing China trade talks… [this looks] increasingly like an environment where the only rational positions to take are either to be flat or long.

This view has continued to play out — analysts widely expect this to be the worst earnings season in three years, but markets seem fixed on shrugging off declining profits and continue to rally towards their all-time highs. It seems as if the only criteria for continued strength is that trade talks continue to ‘progress’.

Technically, golden crosses have set in across major US indices, the majority of their component sectors (~60% of S&P industries), and global markets (~65% of countries). A golden cross is a technical signal where the 50-day moving average crosses above the slower 200-day MA — the opposite of a death cross, where the reverse happens. Ceteris paribus, this signal is viewed variously as a confirmation of an ongoing upward trend, and also a forward-looking signal for a long-term bull market.

Worth noting also is that the rally of this last trading week leaves most markets technically overbought. With the S&P up more than 15% for the year, any less than sanguine news events could provide an excuse for profit-taking in the short-term.

Chart from Sigma by Hydra X

The S&P 500 rose for a seventh consecutive day, its longest rally since 2017. It was up 2% for the week, closing at 2,892, six month highs, and 1.6% from its all-time high of 2,940. NFPs increased by 196,000 in March (vs 177,000 median estimates), and unemployment came in at 3.8%, near a 49-year low. Analysts interpret these numbers as showing the real economy and labour market are strong, and the risk of a recession is unlikely.

Technically, the index has continued its uptrend, holding resistance-turned-support, breaking out of the bull flag identified last week, and rallying towards its all-time highs. We see a golden cross formed by the 50-day SMA (red) crossing above the slower 200-day SMA (blue).

Chart from Sigma by Hydra X

The DJI closed at 26,424.99. The index has also put in a golden cross, and continues its rise along an ascending channel, breaking clear of the descending trend line dating back to Oct 2018 and overhead resistance.

Chart from Sigma by Hydra X

Throughout the tech sector, bad news seems to abound. Profits are shrinking, valuations reflating, semiconductor orders have slumped, infrastructure spending has reduced, and privacy and monopolistic concerns have led to scrutiny from politicians and regulators. Tech stocks trade at 4.4x sales, a multiple that is twice as high as the rest of the market and just about the highest premium since the dot-com era. Investors have been steadily buying into a growth sector that has priced in ongoing growth while simultaneously forecasting a growth slump.

But for traders, long is strong till long is wrong. Tech continues to lead this rally. QQQ (large-cap tech) has rallied unremittingly past any meaningful technical resistance, and has reached rarified heights, looking set to challenge its all-time highs. A golden cross formed on Tuesday, 2 April.

Chart from Sigma by Hydra X

The SSE Composite has also experienced a golden cross, and a bullish week. The breakout from the bull flag and congestion zone we were watching for last week has indeed precipitated a strong rally, and the index has closed the gap from March 2018. Next meaningful resistance is in the 3,320–30 region.

Chart from Sigma by Hydra X

Another headline maker this week was the stunning rally in BTC. This is an insiders’ asset class. As in the case of most previous large price movements, lay traders have been left scratching their heads in the aftermath and wondering what could have caused it.

Speculation on reasons for the rally have run the gamut of an April Fool’s fake news article, the SEC giving stealth approval to a new ETF, Warren Buffett diversifying into crypto, and a professional short squeeze. Zhao Changpeng, CEO of Binance, tweeted “anyone know any news? I have been asked ‘a few’ times, but honestly clueless.”

We had noted in previous weeks that BTC was coiling tighter in an extended symmetrical triangle, mirroring price action that preceded its breakdown at the end of 2018, and could resolve with prices breaking in either direction. This week, we saw that breakout — upwards. Perhaps, with the benefit of hindsight, we were given a clue to the direction of the breakout given the way price action has repeatedly tested the upper boundary of that triangle in recent weeks.

The end-2018 BTC breakdown saw a sharp move down, a short consolidation in form of a bear flag, followed by a second leg collapse. This rally has seen a similar dislocation upward, and prices are consolidating now just below the 38.2% fib retracement from July 2018 highs. We are watching with interest to see if this consolidation similarly results in a continuation leg higher.

Chart from Sigma by Hydra X

Banks in Singapore have been rallying. DBS, which has been trading upwards in an ascending channel supported also by its 50-day SMA, has gapped strongly above ~$26.00 resistance. It is now testing $27.00, a long-term inflection point and also the 50% fib resistance from mid-2018 highs

Chart from Sigma by Hydra X

Sembcorp Marine, which we have been watching, has broken above its long term descending trend line from early 2018 — a line which has been tested and validated no less than 4 times previously. A break and close above the trend line and long-term falling wedge make a bullish case. But tepid volumes and sluggish candles make this far from compelling to us. A close and hold above $1.78 on strong volumes would pique our interest.

Chart from Sigma by Hydra X

Guocoland has been the subject of some recent market chatter, with a slow and steady rise along a tight ascending channel throughout 2019 rekindling evergreen discussions of privatisation. In the near-term, the rally seems to be facing headwinds: the stock has run into layers of resistance at $1.94 and the 50% fib retracement of mid-2018 highs at $1.96, with $2.00 psychological resistance to follow. We also see bearish divergences in both volume and momentum.


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