Last week closed with a rebound for the US stock market, as traders pushed stocks harder than ever. After losses nearing 4% the previous week, this week saw the S&P500 reach new all-time highs over 3340. Bitcoin is also performing quite well, hitting near the 10k mark as of this writing.
However, this current strong uptrend may indicate deeper issues are at foot regarding values. As of this writing, the market sits at 11% over its 200-day moving average—a strong signal that the market is overextended and ready for a correction. [Forbes]
While buyers have pushed the market higher, performance ratios also play into the mix. A quick analysis reveals that low-risk stocks are outperforming high risk. This is generally a sign of trader caution and reveals a relative weakness in the market.
Such weakness is often the sign of an overbought market, which will eventually pop. Whether this happens in the near or short term is anyone’s guess, but something has to give.
The US stock market has seemingly continued pressing into uncharted highs every week throughout the Trump presidency. As stock prices increase, however, the market continues to extend itself into unknown territory.
As the market grows into areas of uncertainty, the anxiety over real valuations begins to take root. This type of fear moves investors out of positions of high risk and into positions of stability.
During these price activities, it is not uncommon for market forces to drive investors into ‘safe-haven’ asset structures. Its no wonder then, that gold and precious metals have increased in value, as fear has crept into the market.
This, along with the potential for upside in a non-equity structure, is also why Bitcoin has increased in value. As the $10,000 price looms, the market has seen dramatic growth through the past month, even in the face of recession style pullbacks in the stock market.
Whether the market shift results in a Bitcoin jump or investors see the volatile asset as too risky remains to be seen. Nevertheless, as a unique class of investment, Bitcoin certainly provides an option for cash-rich investors.