The US and European stock futures are trading lower during the early hours of trading as traders continue to book some profits off the table. The sentiment in the market is still positive and traders are still in the mood for favouring riskier assets, especially after the US relaxed its coronavirus travel related restrictions. Over the past two days, we have seen serious fund inflow for the airline ETFs as most of the airlines have nearly doubled their prices. They have seen strong demand ahead of the holiday season.
The reason that we saw the S&P 500 closing in negative territory yesterday was mainly due to the drag from the Tesla stock price, a prominent member of the S&P 500, which plunged over 12%. The current sell-off in Tesla, which is due to the fact that Elon wants to cash out some of its gains could be an opportunity for investors as the fundamentals are really strong. For instance, Hertz buying Tesla is a strong factor for Tesla as consumers get to experience the advantages of driving a Tesla before buying one, and it is highly likely that Hertz will add that car to their fleet.
Economic Docket
In terms of today’s price action, traders and investors are going to be laser focused on one thing and one thing only and that is the US CPI data. The debate of inflation being transitory or not transitory can flare up further on the back of this reading. Of course, what everyone likes to see is inflation cooling off a little a bit and easing off from its highs. However, the probabilities aren’t in favour of that happening. If we do get to see a reading which confirms that inflation is only a one way trade, we could see traders becoming more nervous and that can trigger an intense sell-off for the tech stocks—a trend which have seen repeatedly this year.
Traders will also question the current monetary policy of the Fed and there is a strong possibility of sturdy moves in the US Treasury market as well, as traders will start betting on a more hawkish stance from the Fed.
Cryptos
Although cryptos are trading lower, traders have their eyes on something big which is the seasonality factor—something which is very much behind the current gigantic rally in cryptos. Generally speaking, Bitcoin prices rally during this part of the year and when Bitcoin rallies, pretty much the entire crypto sector rallies as well. For the past two days we have seen new record highs for Bitcoin and Ethereum—the top two crypto coins by market cap.
Another important fact about Bitcoin, and one which is also driving the rally, is that investors are feeling a lot more confident with the concept that cryptos should be part of their portfolios. Basically, when people like Tim Cook, the CEO of Apple, also start coming out by declaring that they personally own cryptos, it only gives more confidence to retail and institutional investors.
The biggest moment for Bitcoin will be when a company like Apple begins investing its corporate treasury funds in Bitcoin, just like Tesla did. For now, Tim Cook has made it clear that isn’t in the pipeline, but the reality is that these things come in parts. Tim Cook stayed under the radar for a long time before finally declaring that he has been interested in Bitcoin for a long time.
As for the price for Bitcoin, there is no doubt that Bitcoin’s price action is way over extended, and the confirmation of this argument also comes from the RSI on the daily time frame, which tells us that the prices are overbought. However, Bitcoin is a different kind of animal, and the RSI can stay in the overbought territory for a long period of time. What investors are really focused on now is the Bitcoin price crossing above the 70K price level and staying above that level as that will only keep the hopes alive for the Bitcoin price touching the 100K level before the end of this year.
For Ethereum, many consider that the price is likely to cross above the 5K price level and this could happen as early as this week.