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Commentary: Bitcoin bubble bursting an ominous sign for markets
00:00, 19 November 2013
Active traders tend to be well aware of old market sayings like “The trend is your friend”, “The trend is the trend until it ends” and “Don’t fight the Fed”. Students of history, meanwhile tend to be well aware that the first signs of trouble don’t appear in the heartlands, they appear in the frontiers, at the margins. While the core of the markets has been strong with the Dow Industrials hitting a new all-time high yesterday, action over the last 24 hours at the margins has been very troubling. Some of the high flyers of the last few weeks and months have started to crack in a major way. The biggest flameout has been Bitcoin, a virtual currency that soared up toward $900 overnight which has since has collapsed back toward $560 within a few hours. This appears to be a classic blow off top and bubble burst. Think about silver’s run at $50 and subsequent collapse as an example. A change in momentum has also been seen in some stocks. While the blue chips were rallying Tuesday, some of the highest flyers of recent months were collapsing. Tesla Motors fell 10.2% and is down 37% from its September closing high. Facebook and Twitter both fell 6.4% yesterday and are down 15.4% and 17.7% from their highs. Pandora Media fell 5.8% yesterday from an all-time high the day before. Another sign of exhaustion was seen in overseas markets which fell overnight in response to bearish comments from Carl Icahn I don’t care who they are, if a market starts to topple just because somebody says something, to borrow from comedian Jeff Foxworthy, you just might be way overbought. This action suggests that markets have become so overextended that some traders may be looking for any excuse to head for the door. That being said, US indices have been holding on to yesterday’s gains so far and still appear to be supported by all the Fed money coming in. While the broader trend remains intact for now, cracks in the foundation have started to appear and the reaction to the Icahn comments suggests it may not take much for this rally to start falling under its own weight. Corporate News Sears Canada ($0.48 vs year ago ($0.22), to pay $5.00 per share extraordinary cash dividend to shareholders (mainly Sears US). This suggests that the recent sale of leases at key Canadian malls were likely driven by the struggling parent company’s need for cash. Home Depot $0.95 vs street $0.89, raised full year guidance to $3.72 from $3.60 Economic News Significant economic announcements released yesterday afternoon and overnight include: Australia RBA meeting minutes prudent to hold rates steady, door to cut left open a crack, thinks AUD too high, economy improving, overall no surprises Australia leading indicator 0.3% vs previous (0.2%) Japan leading indicator 109.2 vs street 109.5 Germany ZEW current 28.7 vs street 31.0 Germany ZEW expectations 54.6 vs street 54.0 vs previous 52.8 Eurozone ZEW expectations 60.2 vs previous 59.1 Turkey interest rate decision 4.50% no change as expected Economic reports due later today include: There are no major announcements scheduled for North America later today.