Category: US & Canada

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Bitcoin Plunge Signals Risk-Off

Key Points

  • Bitcoin plunged to $71,200, warning that financial markets are becoming risk-averse.
  • Brent crude surged to nearly $70 per barrel amid heightened US-Iran tensions.
  • Volatility following the CME margin hike, effective Monday, triggered a broad selloff in precious metals and energy transition metals.

Bitcoin2 (BTC) broke support at 85,000, the steep decline warning that financial markets are shedding risk assets.

Bitcoin (BTC)

The S&P 500 index retreated below 6900, but long tails and a rising Trend Index indicate strong buying interest.

S&P 500

However, the Roundhill Magnificent 7 ETF (MAGS) is headed for a test of primary support at 63, while Trend Index peaks at zero warn of selling pressure. A breach of support would be a strong bear signal.

Roundhill Magnificent 7 ETF (MAGS)

10-year Treasury yields are testing resistance at 4.3%. A breakout would offer a short-term target of 4.4%.

10-Year Treasury Yield

Dollar & Gold

The US Dollar Index is testing resistance at 98, but remains in a long-term downtrend. Respect of resistance will likely signal another decline.

Dollar Index

Gold is testing resistance at $5,000 per ounce after Friday’s sharp fall.

Spot Gold

The primary reason for the sharp fall in copper and precious metals was not Trump’s nomination of Kevin Warsh as the next Fed Chair. On January 29, the CME announced that it was again increasing margin requirements on futures contracts, effective Monday, February 2.

Comex Margin Increase

Comex Margins

The increase in CME margin requirements is intended to discourage leveraged speculation in key contracts that show signs of overheating.

Silver had a higher speculative interest, making it more susceptible to the margin hike, with the metal testing support at $70 per ounce.

Spot Silver

Energy & Energy Transition Metals

Brent crude is testing resistance at $70 per barrel on heightened US-Iran tensions.

Brent Crude

The Dow Jones Global Oil & Gas index is in a strong uptrend, with rising Trend Index troughs reflecting buying pressure.

Dow Jones Global Oil & Gas Index

Copper

The margin hike had less effect on copper, which retreated to $13,000 per tonne from its recent peak of $13,500 per tonne.

Copper

Copper miners were more susceptible to the risk-off shift in financial markets, with Sprott Copper Miners ETF1 (COPP) testing support at 40.

Sprott Copper Miners ETF (COPP)

Uranium

Uranium was not directly affected by the CME margin hike but was caught up in the broader selloff, with the Sprott Uranium Miners ETF1 (URNM) testing support at 70.

Sprott Uranium Miners ETF (URNM)

Lithium

Lithium suffered a similar fate, with Sprott Lithium Miners ETF1 (LITP) breaking support at 14.

Sprott Lithium Miners ETF (LITP)

Critical Minerals

Critical materials experienced a similar selloff, with Sprott Critical Materials ETF1 (SETM) testing support at 34.

Sprott Critical Materials ETF (SETM)

Conclusion

The CME margin hike, which took effect on Monday, was intended to cause a correction in copper and precious metals. However, the selloff spread to uranium, lithium, and critical materials. Risk aversion also spread to financial markets, as evidenced by a steep fall in risk assets such as Bitcoin.

Mega-cap technology stocks have experienced a selloff, with the Roundhill Magnificent 7 ETF (MAGS) approaching its primary support level. A breach of support would be a strong bear signal for the broader S&P 500 index, with market leaders falling behind their second-tier counterparts.

We can expect further CME margin hikes as the exchange seeks to curb speculative excesses. Volatility will likely discourage speculation but have minimal impact on the secular rise in demand for gold, copper, uranium, lithium, and critical materials.

Acknowledgments

Notes

  1. We analyze exchange-traded funds (ETFs) to determine market sentiment towards a specific sector, industry, or commodity. The analysis is not a recommendation to buy or sell, nor is it a commentary on the merits of the particular ETF.
  2. We analyze Bitcoin (BTC) — the most volatile risk asset — to identify risk sentiment in financial markets. Our analysis is not a recommendation to buy or sell, for which we are ill-equipped to express an opinion, nor is it a commentary on the merits of the cryptocurrency.
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US Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, and the indicator on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuations are high; however, we recommend exercising caution when adding new positions.

Bull/Bear Market

The Bull/Bear indicator remains at 40%, warning of a bear market ahead, with three of five indicators signaling risk-off.

US Bull-Bear Market Indicator

The National Financial Conditions Index from the Chicago Fed eased to -0.60, indicating loose financial conditions similar to 2021. However, Bitcoin’s fall below $85,000 suggests that financial markets are becoming increasingly risk-averse.

Chicago Fed National Financial Conditions Index

Continued unemployment claims slumped to 1.827 million, confirming the recent fall in the unemployment rate to 4.4%. Both measures are below the typical threshold for a recession.

Continued Unemployment Claims

Stock Pricing

Stock pricing increased to 98.19 percent from 98.15 percent last week, close to the October high of 98.66, compared with a low of 95.04 percent in April. The extreme pricing warns that stocks are at risk of a significant drawdown.

US Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

Conclusion

The bull-bear indicator at 40% warns of a bear market ahead, while extreme price levels increase the risk of a significant drawdown.

Acknowledgments

Notes

Posted on

US Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, and the indicator on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuations are high; however, we recommend exercising caution when adding new positions.

Bull/Bear Market

The Bull/Bear indicator remains at 40%, warning of a bear market ahead, with three of five indicators signaling risk-off.

US Bull-Bear Market Indicator

The National Financial Conditions Index from the Chicago Fed eased to -0.59, indicating loose financial conditions similar to 2021, but Bitcoin’s fall below $90,000 warns that investors are shifting to risk-off.

Chicago Fed National Financial Conditions Index

Stock Pricing

Stock pricing eased to 98.15 percent from 98.20 percent last week, but remains close to the October high of 98.66, compared with a low of 95.04 percent in April. The extreme pricing warns that stocks are at risk of a significant drawdown.

US Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

Warren Buffett’s favorite measure of stock market valuations is stock market capitalization to GDP. The current record high of 3.08 is at a considerable premium to the Dotcom bubble peak at 1.89 and the 50-year average of 1.20.

Stock Market Capitalization/GDP

Robert Shiller’s CAPE ratio compares the current S&P 500 index to the preceding 10 years of inflation-adjusted earnings. The current value of 40.09 is only the second time in more than a century that the ratio has crossed above 40. The first time was during the Dotcom bubble in 1999-2000. The average over the past 50 years is 22.3.

S&P 500 CAPE

Conclusion

The bull-bear indicator at 40% warns of a bear market ahead, while extreme price levels increase the risk of a significant drawdown.

Acknowledgments

Notes

Posted on

Trump Backs Down

Key Points

  • President Trump backed off his threats to seize Greenland and said he will not impose additional tariffs on EU members.
  • Stocks rallied, but the mega-cap Magnificent 7 remain under pressure.
  • Gold and silver retraced to test new support levels.

From Reuters:

On a whirlwind trip to the World Economic Forum annual meeting in Davos, Switzerland, Trump backed down from weeks of rhetoric that shook the NATO alliance and risked a new global trade war.

Instead, Trump said, Western Arctic allies could forge a new deal that satisfies his desire for a “Golden Dome” missile‑defense system and access to critical minerals while blocking Russia and China’s ambitions in the Arctic. “It’s a deal that everybody’s very happy with,” Trump told reporters after emerging from a meeting with NATO Secretary General Mark Rutte. “It’s a long-term deal. It’s the ultimate long-term deal. It puts everybody in a really good position, especially as it pertains to security and to minerals.”
He added: “It’s a deal that’s forever.”

A NATO spokesperson said seven NATO allies in the Arctic would work together to ensure their collective security.
“Negotiations between Denmark, Greenland, and the United States will go forward aimed at ensuring that Russia and China never gain a foothold – economically or militarily – in Greenland,” the spokesperson said.

Trump said on his Truth Social platform that the US and NATO had “formed the framework of a future deal with respect to Greenland and, in fact, the entire Arctic Region,” and that “based upon this understanding, I will not be imposing the Tariffs that were scheduled to go into effect on February 1st.”

…Earlier in the day, the Republican US president acknowledged financial markets’ discomfort with his threats and ruled out force in a speech at the Swiss Alpine resort.
“People thought I would use force, but I don’t have to use force,” Trump said. “I don’t want to use force. I won’t use force.”

The S&P 500 rallied to test the former resistance level of 6900, but declining Trend Index peaks continue to indicate selling pressure.

S&P 500

The Nasdaq QQQ ETF displays similar selling pressure.

Invesco Nasdaq 100 ETF (QQQ)

Selling pressure on mega-cap technology stocks is more severe, with the Roundhill Magnificent 7 ETF (MAGS) testing primary support at 63, and the latest Trend Index peak at zero.

Roundhill Magnificent 7 ETF (MAGS)

Mega-caps are falling faster than small-cap stocks, with MAGS in a steep downtrend relative to the Russell 2000 Small Caps ETF (IWM).

Roundhill Magnificent 7 ETF (MAGS) relative to iShares Russell 2000 Small Caps ETF (IWM)

The post-Liberation Day regime has been particularly lucrative for the corporate halt and lame. As Apollo chief economist Torsten Slök pointed out yesterday, Russell 2000 members generating negative earnings per share have returned nearly 50% on average since the close of trading last April 2, some 20 percentage points better than the components operating in the black. Over the same period, a Goldman Sachs-compiled basket of the most heavily shorted stocks has generated a 61% return, leaving the S&P 500’s 21% figure in the dust. (Grant’s Daily)

US stocks are also underperforming their global peers, with the Dow Jones US Index ($DJUS) falling relative to the Dow Jones World Index excluding the US (W2DOW).

DJ US Index ($DJUS) & DJ World ex-US ($W2DOW)

Financial Markets

Bitcoin broke support at 90,000 but is now retracing to test the new resistance level. Recovery above 90,000 would indicate that tight liquidity is easing.

Bitcoin (BTC)

10-Year Treasury yields eased to 4.243%, headed for a test of new support at 4.20%.

10-Year Treasury Yield

Dollar & Gold

The Dollar rallied after a sharp fall on Tuesday, but still displays long-term weakness.
Dollar Index

Gold is retracing after testing $4,900 per ounce on Tuesday. We expect retracement to test new support at $4,600.

Spot Gold

Silver is similarly retracing to test support, and a breach of $90 will likely indicate a correction to $80 per ounce.

Spot Silver

Conclusion

Gold and silver continue in strong uptrends. Demand is driven by concerns about geopolitical risk and fiscal stability, amid large deficits and precarious sovereign debt levels across many developed economies.

A reader asked if there are signs that a blow-off top is forming in gold and silver, but regular corrections to test new support levels ease pent-up demand and limit the risk of a blow-off.

Stocks rallied on news of easing tensions over Greenland, but mega-cap technology stocks lag. This signals the final stage of a bull market, when market leaders no longer lead the rallies and investors chase riskier small caps.

Acknowledgments

Posted on

US Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, and the indicator on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuations are high; however, we recommend exercising caution when adding new positions.

Bull/Bear Market

The Bull/Bear indicator remains at 40%, warning of a bear market ahead, with three of five indicators signaling risk-off.

US Bull-Bear Market Indicator

The National Financial Conditions Index from the Chicago Fed eased to -0.573, indicating loose financial conditions similar to 2021.

Chicago Fed National Financial Conditions Index

Stock Pricing

Stock pricing eased to 98.20 percent from 98.34 percent last week, but is still close to the October high of 98.66, with a low of 95.04 percent in April. The extreme pricing warns that stocks are at risk of a significant drawdown.

US Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

The S&P 500 Forward Price-to-Sales ratio increased to a record high of 3.34 compared to its long-term average of 1.81.

S&P 500 Price-to-Sales Ratio

Operating margins reached a new high of 13.55% in the September quarter, but will likely shrink when financial conditions tighten.

S&P 500 Operating Margins

Conclusion

The bull-bear indicator at 40% warns of a bear market ahead, while extreme price levels increase the risk of a significant drawdown.

Acknowledgments

Notes

Posted on

US Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, and the indicator on the right reflects the current stock market valuation. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuations are high; however, we recommend exercising caution when adding new positions.

Bull/Bear Market

The Bull/Bear indicator remains at 40%, warning of a bear market ahead, with three of five indicators signaling risk-off.

US Bull-Bear Market Indicator

Continued unemployment claims increased to 1.914 million on December 27, up more than 500K since their June 2022 low of 1.349 million. However, the December unemployment rate of 4.4% remains below the 5.0% threshold typically associated with a recession.

Continued Claims & the Unemployment Rate

Heavy truck sales are trending lower, with the 12-month moving average falling to 34K units in December. The decline of more than 10% from the October 2023 high of 43K is typical of a recession and signals risk-off.

Heavy Truck Sales

Employment in cyclical sectors — manufacturing, construction, transportation, and warehousing — represents only 17% of total nonfarm employment in the US, but typically accounts for most job losses during a recession. The decline of 164K from its February 2025 peak indicates that the economy is slowing, and a drop of 300K would signal risk-off.

Cyclical Sectors Employment

Stock Pricing

Stock pricing increased to 98.34 percent from 98.16 percent last week, close to the October high of 98.66, compared to a low of 95.04 percent in April. The extreme pricing warns that stocks are at risk of a significant drawdown.

US Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

The S&P 500 Forward Price-Earnings at 24.3 is high relative to its 50-year moving average of 16.4. In the past 125 years, the current peak has been exceeded only by the 2000 Dotcom bubble.

S&P 500 Forward Price-Earnings Ratio

Conclusion

The bull-bear indicator at 40% warns of a bear market ahead, while extreme price levels increase the risk of a significant drawdown.

Acknowledgments

Notes

Posted on

US Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, and the indicator on the right reflects the current stock market valuation. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuations are high; however, we recommend exercising caution when adding new positions.

Bull/Bear Market

The Bull/Bear indicator remains at 40%, warning of a bear market ahead, with three of five indicators signaling risk-off.

US Bull-Bear Market Indicator

Chicago Fed National Financial Conditions declined to -0.569, indicating loose monetary conditions that support high stock prices.

Chicago Fed National Financial Conditions

Stock Pricing

Stock pricing eased to 98.16 percent but remains close to its October high of 98.66, with a low of 95.04 percent in April. The extreme pricing warns that stocks are at risk of a significant drawdown.

US Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

The S&P 500 Price-to-Sales ratio reached a new extreme of 3.31 based on estimates for the December quarter, way above the 25-year average of 1.81.

S&P 500 Price-to-Sales Ratio

Conclusion

The bull-bear indicator at 40% signals a bear market ahead, while extreme price levels increase the risk of a significant drawdown.

Acknowledgments

Notes

Posted on

US Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, and the indicator on the right reflects the current stock market valuation. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuations are high; however, we recommend exercising caution when adding new positions.

Bull/Bear Market

The Bull/Bear indicator remains at 40%, warning of a bear market ahead, with three of five indicators signaling risk-off.

Bull-Bear Market Indicator

Heavy truck sales were revised down to 25,500 units in November, with the 12-month MA falling to 35,200. Declining truck sales are now at recession levels, indicating that economic growth is slowing.

Heavy Truck Sales (Units)

Stock Pricing

Stock pricing increased to 98.57 percent, close to its October high of 98.66, and above the low of 95.04 percent in April. The extreme pricing warns that stocks are at risk of a significant drawdown.

Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

Warren Buffett’s favorite stock market valuation metric compares market capitalization to nominal GDP. The ratio has reached a record high of 2.99 compared to a 50-year average of 1.18, indicating that stock market pricing is extreme.

Stock Market Capitalization/GDP

Robert Shiller’s CAPE ratio compares the S&P 500 index to a 10-year average of inflation-adjusted earnings. The current value of 40.1 is the highest outside of the 1999-2000 Dotcom bubble.

Robert Shiller's CAPE Ratio

Conclusion

The bull-bear indicator at 40% signals a bear market ahead, while extreme pricing increases the risk of a significant drawdown.

Acknowledgments

Notes

Posted on

US Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, and the indicator on the right reflects the current stock market valuation. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuations are high; however, we recommend exercising caution when adding new positions.

Bull/Bear Market

The Bull/Bear indicator remains at 40%, warning of a bear market ahead. One labor market data indicator (highlighted in orange below) remains delayed due to the recent US government shutdown.

Bull-Bear Market Indicator

Employment in cyclical sectors has declined by 111,000 from its February peak of 27,824,000. A decline of 300,000 would trigger a recession warning. Cyclical sectors — Manufacturing, Construction, Transportation, and Warehousing — account for less than 20% of the total workforce but typically experience most job losses during a recession.

Cyclical Employment

The University of Michigan consumer survey reported the lowest index value ever recorded for current economic conditions since the survey began in 1960.

University of Michigan: Current Economic Conditions

However, the stock market remains buoyant and has not yet confirmed the bear signal.

Stock Pricing

Stock pricing increased slightly to 98.50 percent from 98.48 percent last week, close to its high of 98.66 percent in late October and well above the low of 95.04 percent in April. The extreme pricing warns that stocks are at risk of a significant drawdown.

Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

The S&P 500 Forward Price-Earnings ratio is at 25.0, compared to the historic high of 28.0 during the Dotcom bubble and a 50-year moving average of 16.3. Before the 1999/2000 Dotcom bubble, the forward PE had never risen above 20.0 over the preceding century.

S&P 500 Forward Price-Earnings Ratio

Conclusion

The bull-bear indicator at 40% signals a bear market ahead, while the extreme pricing increases the risk of a significant drawdown.

Acknowledgments

Notes

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