Market Radar 7. November 2022


Bitcoin now in free fall?

Tug-of-war between big and small caps continues

The Nasdaq 100, represented here by the ETF with the abbreviation QQQ, receives the daily stamp “Wait or speculate on Sell Off” from today and now follows the IPO ETF as a risk-off part, which represents the risk-on part in this pair and has had to carry around the gloomy daily stamp “wait or speculate on sell-off” for some time. The risk-on part is always the determiner: only this one sets the direction. Since the Nasdaq 100 in turn represents the risk-on part of the S&P 500, it is to be expected that the risk-off partner S&P 500 tends to follow the Nasdaq 100 and not vice versa. According to risk-on/risk-off logic, the Big Cap area looks more bearish than bullish.

The small and mid cap sector, on the other hand, is different. Bullish is that the Russell 2000, represented here by the ETF with the abbreviation IWM, continues to receive the daily stamp “buy or top-up”. The small and midcap area has decoupled from the big cap area and is doing a bit of “its own bull thing”. According to Risk On / Risk Off logic, the IWM should be able to pull both the S&P 500 and the Nasdaq 100 upwards. But as long as the Nasdaq 100 is not ahead of the S&P 500, the Russell 2000 will have a hard time making clear announcements for these two “brawlers”.

The tug-of-war between bulls and bears is therefore in full swing and a clear winner is currently at least not in sight. However, we can see how the forces in the stock market are currently distributed.

If you want to short equities, you should rather focus on the big caps, and especially on highly capitalized stocks from the technology sector.

What do we see under the radar of the major US stock indices?

The strong drawdown yesterday in the BITO ETF was striking. BITO currently holds the Bitcoin Futures with maturities of November and December. With extremely high trading volumes, the ETF lost about 15% of its value yesterday.

Billionaire Sam Bankman-Fried lost about $25 billion yesterday

What was the reason? Customers wanted to withdraw around $6 billion from the crypto exchange FTX within a few days. FTX boss Sam Bankman-Fried confirmed liquidity bottlenecks on Twitter, which probably accelerated the withdrawal of deposits. The FTT coin, a cryptocurrency put into circulation by Sam Bankman-Fried, lost over 70% of its value yesterday. Thus, the FTX boss could have put a private fortune of 25 billion US dollars in the sand in a single day. According to a report on the Handelsblatt website this morning, Sam Bankman-Fried would have lost his fortune faster than any other billionaire before him – because the FTT coin could now become worthless. In order to ward off a wave of panic in the crypto market, the competing exchange Binance is now to step in as a “savior in need” and take over shares of FTX to create liquidity. In the coming days, Binance is to examine the books of the competitor.

In the coming days, Binance is to examine the books of the competitor. Whether this deal will come about seems far from certain.

Also on the world’s largest crypto exchange Coinbase, there were massive outages yesterday between 19 and 22 o’clock. This morning German time there are again failures, but to a lesser extent. We shorted shares of Coinbase Global (COIN) in pre-market trading today. The share of the world’s largest crypto exchange has fallen below the $50 chart mark before the IPO. The stock’s all-time low is $40.83 and dates back to May 9, 2022. I speculate that the low will now be tested and place the stop loss above the $50 mark.

Pair Trade Gold against Bitcoin would have protected against inflation

The BITO ETF was issued in November 2021 and has lost about 72% of its value since inception. Anyone who regards Bitcoin as an alternative investment to gold has so far bet on the wrong horse. The Gold ETF (GLD) has lost only about 10% of its value since the launch of the BITO ETF. A pair trade GLD Long and BITO Short would have yielded a return of about 62% since November 2021.

Gold and Silver Mines Today with Quarterly Results

Let’s stay with gold. The GDX (ETF for the gold mines) receives the daily stamp “Buy or top-up” from today. That’s how fast it can go.

Today, numerous companies from the mining sector report their quarterly figures. First Majestic Silver (AG) will report pre-IPO, followed by Coeur Mining (CDE), Hecla Mining (HL), Fortuna Silver Mines (FSM). The recently reported quarterly figures of Barrick Gold (GOLD), Newmont (NEM) and Royal Gold (RGLD) have disappointed the stock market. The shares were accordingly punished with sales on their earnings days. Therefore, we will probably not make any pre-earning bets here and will probably realize the profits in the gold mines I hold today. But first I would like to look at the figures of First Majestic Silver and especially the reaction of the stock market to these figures. If the figures of First Majestic Silver are only looked into the future, as was recently the case with solar stocks, then I would possibly stay in overnight with partial positions in the gold mines.

A hooray at Array

The pre-earning bet made yesterday on the IT service provider for the solar industry, Array Technologies (ARRY), paid off in terms of the post-trade reaction – as it did the day before yesterday with SolarEdge (SEDG). The company presented figures that were convincing at all levels. Instead of an expected earnings of $0.10 per share for the 3rd quarter, an actual profit of $0.16 per share was announced. The outlook was also above analysts’ expectations. The share price rose by 15% after the stock market. 

French fries are always bought – even frozen

Lamb Weston (LW) sells potato products mainly through freezers in supermarkets. Since the Americans love French fries more than e.g. potato pancakes, the homepage mainly advertises French fries and their variations. During the Corona pandemic, there was a decline in the net profit margin, which is now to be compensated all the more strongly – certainly also by price increases. By 2024, the company is aiming for sales growth of 10%, but this should be made really palatable with a profit increase of 180%. An impressive operating margin, if it can actually be implemented economically. The P/E ratio would then fall from the current 60 to around 20. So the stock is not a bargain.
The Doji yesterday was already the third in six trading days. So a directional decision is pending. We place a stop-buy order above yesterday’s high of Doji.The French fries share could possibly scratch the $ 100 mark this year (current price: $ 85.18).

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