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Wednesday, US stocks got hammered after the Fitch rating agency downgraded the US government’s debt rating from the best rating of AAA to AA+.
What does History Tell Us?
In early August 2011, S&P announced the company’s decision to downgrade US sovereign debt for the first time ever. Over the next few weeks, the S&P 500 corrected nearly 20%.
Image Source: Zacks Investment Research
Is this Time Different?
While the last downgrade didn’t end well for stocks, it’s tricky to extrapolate much from such a small sample size, in any instance, it is prudent for investors to be cautious at this juncture because stocks have run a long way, trading volumes are light due to summer trading (like last time), and equities are entering a seasonally weak period.
Bitcoin
Volatility is Dry as a Desert
Many investors would be shocked to hear that Bitcoin’s volatility has fallen below that of the Nasdaq, S&P 500, and Gold.
Image Source: TradingView
Bitcoin has traded in a range for all of 2023. Historically, such contraction leads to expansion, but in which direction? Usually, a trending asset leaves a consolidation in the direction it entered. In other words, the most likely outcome is that Bitcoin breaks out to the upside.
“Whale” Seeks Money Raise to Buy More Bitcoin
In its earnings announcement earlier this week, MicroStrategy ((MSTR - Free Report) ), a software company that has adopted the “Bitcoin Standard,” is seeking to raise up to $750 million to buy more Bitcoin. The company already owns more than 150,000 Bitcoin.
Image Source: MicroStrategy
Is the ETF Race a Catalyst for Bitcoin and Coinbase?
“Slowly at first, then all at once” seems to sum up the rush for big institutions to get a piece of the crypto space. Eight institutions have filed papers for a Bitcoin ETF in the past few months, including Fidelity and the world’s largest asset manager, Blackrock ((BLK - Free Report) ). Because Coinbase ((COIN - Free Report) ) is listed as the custodian for these ETFs, the company benefits directly should any of the ETFs be approved. However, Coinbase is still in the middle of fighting off a lawsuit from the SEC. The result of that lawsuit should have broad implications for the crypto market.
Short Squeezers
Heavily Shorted Stocks are in Play
Despite the market weakness on Wednesday, heavily-shorted stocks such as Caravana ((CVNA - Free Report) ) and Overstock () are in play.
More than 40 years ago, Zacks Investment Research’s statistical models led to the breakthrough discovery that “Earnings estimate revisions are the most powerful force impacting stock prices.” In other words, stocks are forward-looking and discount future earnings. In the past 60 days, several analysts have increased CVNA earnings estimates for the current quarter.
Image Source: Zacks Investment Research
Carvana is showing standout relative strength amidst a weak tape – a bullish sign.
Image Source: TradingView
Meanwhile, Overstock has been on a tear since its earnings report last week. Overstock has several catalysts, including the rebranding of bankrupt retailer Bed Bath and Beyond and its tZero product.
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3 Market "Hotspots" to Keep an Eye on
General Market Indices
Fitch Downgrade
Wednesday, US stocks got hammered after the Fitch rating agency downgraded the US government’s debt rating from the best rating of AAA to AA+.
What does History Tell Us?
In early August 2011, S&P announced the company’s decision to downgrade US sovereign debt for the first time ever. Over the next few weeks, the S&P 500 corrected nearly 20%.
Image Source: Zacks Investment Research
Is this Time Different?
While the last downgrade didn’t end well for stocks, it’s tricky to extrapolate much from such a small sample size, in any instance, it is prudent for investors to be cautious at this juncture because stocks have run a long way, trading volumes are light due to summer trading (like last time), and equities are entering a seasonally weak period.
Bitcoin
Volatility is Dry as a Desert
Many investors would be shocked to hear that Bitcoin’s volatility has fallen below that of the Nasdaq, S&P 500, and Gold.
Image Source: TradingView
Bitcoin has traded in a range for all of 2023. Historically, such contraction leads to expansion, but in which direction? Usually, a trending asset leaves a consolidation in the direction it entered. In other words, the most likely outcome is that Bitcoin breaks out to the upside.
“Whale” Seeks Money Raise to Buy More Bitcoin
In its earnings announcement earlier this week, MicroStrategy ((MSTR - Free Report) ), a software company that has adopted the “Bitcoin Standard,” is seeking to raise up to $750 million to buy more Bitcoin. The company already owns more than 150,000 Bitcoin.
Image Source: MicroStrategy
Is the ETF Race a Catalyst for Bitcoin and Coinbase?
“Slowly at first, then all at once” seems to sum up the rush for big institutions to get a piece of the crypto space. Eight institutions have filed papers for a Bitcoin ETF in the past few months, including Fidelity and the world’s largest asset manager, Blackrock ((BLK - Free Report) ). Because Coinbase ((COIN - Free Report) ) is listed as the custodian for these ETFs, the company benefits directly should any of the ETFs be approved. However, Coinbase is still in the middle of fighting off a lawsuit from the SEC. The result of that lawsuit should have broad implications for the crypto market.
Short Squeezers
Heavily Shorted Stocks are in Play
Despite the market weakness on Wednesday, heavily-shorted stocks such as Caravana ((CVNA - Free Report) ) and Overstock () are in play.
More than 40 years ago, Zacks Investment Research’s statistical models led to the breakthrough discovery that “Earnings estimate revisions are the most powerful force impacting stock prices.” In other words, stocks are forward-looking and discount future earnings. In the past 60 days, several analysts have increased CVNA earnings estimates for the current quarter.
Image Source: Zacks Investment Research
Carvana is showing standout relative strength amidst a weak tape – a bullish sign.
Image Source: TradingView
Meanwhile, Overstock has been on a tear since its earnings report last week. Overstock has several catalysts, including the rebranding of bankrupt retailer Bed Bath and Beyond and its tZero product.