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AM Brew May 13th 2022
Yesterday Crypto had a major scare with Tether having a mini flash-crash, trading down below $0.96 then fully recovering. We see no reason for anyone to ever own Tether - its a classic all downside with no upside trade. This mini crash also increases the chance of regulation and increases the chance that a true audit finds the emperor's wardrobe is a bit bare. BTC is trading up a healthy 9% to $30,505.
Futures this morning are trading up strongly a bit prior to 11:00 am London time: the S&P500 is up over 1% and Nasdaq futures are up 1.55%. Crude oil is up $1 to $107
In FX, the Euro and Pound are continuing their weeks long slide, with the Euro at 1.03 and threatening to break parity. Sterling traded below the significant $1.22 level and appears ready to test the $1.20 threshold. A few years back, the Pound did break sharply below $1.20 down to $1.16, only to bounce back strongly within a few hours. Americans missed the chance as it all happened in the London morning session, and Americans that woke up didn't see much movement at all. These short-term round trips are the way the market trades now. You need to be ready to pounce because sometimes you only have an hour or two to pull the trigger. Look at Tether's flash crash:
Traders had very little time to react. This is happening in stocks. Last night, we published a very cool chartbook called "We haven't seen these signals in Years". Looks like this morning's futures action is confirmation and providing a nice entry point. That said, markets are moving faster than ever, and investors & traders need to be prepared in advance as much as possible. The opportunity to buy Bitcoin at $27,000 was there but only for those that reacted expediently:
With all the uncertainty out there, expect the market to keep moving quicker than ever. Remember last week's mini-flash-crash in Sweden where an 8% drop was quickly retraced within a few hours? With Putin and Xi out there, anything can happen, and investors need to be prepared in advance for a plethora of scenarios.
FX is quite interesting given the substantial recent strength in the US Dollar. The dollar is either breaching or threatening critical levels versus the Euro, Swissie, Pound, and RMB. USD is also quite strong versus the Yen:
We are looking for a dead-cat bounce here in most risk-assets. No end to the bear is in sight, but after weeks of straight down, an exhaustion rally looks to be in the cards. The majority of the across the board over-valuation is over: bonds are more reasonable and last night's post showed that the large caps, although not cheap, are investable after such a huge decline.