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LIVE MARKETS-ECO vs MAGA: Is there a lesson in Bitcoin?

Thu, 22nd Oct 2020 15:26

* Major U.S. indexes reverse course, now in negative territory
* Cons disc down most among major S&P 500 sector; healthcare leads gainers
* Dollar, NYMEX Crude up; gold down; U.S. 10-Yr T-Nt yield ~0.83%

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You
can share your thoughts with us at markets.research@thomsonreuters.com


ECO VS MAGA: IS THERE A LESSON IN BITCOIN? (1007 EDT/1407 GMT)
In the movie "Cocktail" the character of "young Flanagan" offered sage words: "Everything
ends badly, otherwise it wouldn't end."
When looking at charts, there is a pattern that argues that there may be a bad end coming,
and that's a parabolic rise.
A parabolic rise is an exponential move, where the angle of ascent increases to such a
point, it becomes unsustainable. This can lead to a very sharp reversal once the parabolic curve
is broken.
A parabolic rise can be the result of extreme greed, and/or manic behavior, on the part of
investors and traders.
An example of a parabolic rise, and its end, can be seen in the daily chart of Bitcoin
leading up to its late-2017 top:




From early in 2017 to late 2017, Bitcoin rallied nearly 2000%. However, once its thrust
exhausted, it lost more than 80% of its value into its late 2018 low.
There is another chart that now appears to be showing a parabolic rise. That's a daily chart
of the WilderHill Clean Energy Index / Point Bridge GOP Stock Tracker Index
ratio:



The ECO reflects the market performance of clean energy and climate-change solutions'
stocks. This group is clearly seen as benefiting from a Biden/Democratic Presidential election
win. The MAGA index is made up of 150 companies from the S&P 500 index whose
employees and political action committees (PACS) are seen as highly supportive of Republican
candidates.
Of note, the ratio bottomed in early-November 2012, just after the re-election of President
Obama. From its early 2014 top, it declined before bottoming just after the election of
President Trump in late November 2016.
Since then, the ratio has risen, perhaps as the result of a developing longer-term global
trend in favor of renewable energy. That said, since odds maker PredictIt showed a Biden Victory
in early June, the ratio appears to have launched into a parabolic rise.
The sheer force of the ratio's rise can reflect the market's belief in a blue-wave
. That said, the parabolic rise can also suggest that the ECO's relative rise vs the
MAGA can be at risk for an especially severe reversal in the event of a surprise.

(Terence Gabriel)
*****


ROLLING UP DEBT (0923 EDT/1323 GMT)
It looks like it has become too expensive for speculative-grade (non financial) companies in
EMEA to borrow fresh cash. As a result, they are increasingly opting to roll up existing debt
with lenders, a recent report suggests.
The total debt of those companies jumped by nearly half since 2019 to $1.6 trillion, but
only a portion of this increase is due to fresh cash borrowed during the pandemic, says rating
agency Moody's
This is because "speculative-grade companies have increasingly relied on revolving credit
facilities with banks during the pandemic".
"This is exemplified by the higher level of drawings under these facilities. The trend
suggests that bond issuance became too expensive and unattractive for many," the rating agency
adds.


(Joice Alves)
*****


NASDAQ COMPOSITE: TROOPS BEATEN BACK (0905 EDT/1305 GMT)
On October 12, the Nasdaq Composite ended around 1.5% shy of resistance at its
September 02 record closing high at 12,056.443, and its record intraday high of 12,074.065.
With this, the Nasdaq daily Advance/Decline (A/D) line, or a cumulative measure of
net advancing stocks in the index, went into battle with a number of major chart barriers. So
far, the Nasdaq breadth measure has turned tail and run, while the Nasdaq Composite has been
beaten back. (Click on chart below)
Indeed, on October 12, the A/D line essentially touched the resistance line from its summer
2018 high. It also came close to both its January 2020 top and its 2018 peak. It has since
declined to a more than 2-week low, as the IXIC has given up slightly more than 3%.
A continued retreat in the A/D line may see the Composite surrender to spreading internal
weakness. In that event, the tech-laden index can be vulnerable to a much deeper
decline. Therefore, it may be critical for the A/D line to quickly recover and clear its
hurdles.
Meanwhile, for the Nasdaq 100, is volatility of volatility about to vault?
And given the S&P 500's froth, that index may be at risk for a greater spill.




(Terence Gabriel)
*****


FOR THURSDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT CLICK HERE:






(Terence Gabriel is a Reuters market analyst. The views expressed are his own)

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