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| By Juan Villaverde |
Last week, I said the Correlation 1 moment — when crypto and stocks move tick-for-tick with oil prices — seemed to have passed.
Since then, crypto has indeed gone mostly sideways. While stocks continued their historic ascent — now up 12.5% since their March 30 low. And oil marched eerily higher and higher, crossing the critical $100 threshold again on West Texas Intermediate.
For a while, it seemed like the Mideast — which has already triggered the worst energy crisis in modern history — no longer mattered.
Yet the news on the ground could hardly be worse.
For example, never has there been LESS traffic through the Strait of Hormuz. The few ships that make it past Iran’s blockade are now seized by the U.S. Navy.
Zero traffic is the new normal.
Last week, it appeared investment markets were pricing in more peace talks. That Trump's blockade of the Strait would coerce the Iranians back to the negotiating table. But that did not happen.
In fact, where things stand today, there is no discussion of any future negotiations.
Both sides are digging in their heels and talking tough. While the physical constraints in the energy market (and other non-replaceable commodities markets, like helium) grow worse day by day.
Indeed, I can't ever remember seeing such a big disconnect between the stock market — record high, after record high — and the real economy.
I suspect a lot of stock investors are just in denial. Overeager to price in a resolution to the conflict, they jump in with both feet at the merest hint the fighting might effectively end.
So, where do things stand now?
President Trump now says the U.S. naval blockade will last “for months” until Iran is ready to negotiate. Iran says it will not negotiate “under pressure.”
Both sides are playing a game of chicken to see who blinks first.
Meanwhile, the …
Correlations with Oil Makes a Comeback
Don't get me wrong. This is not a precise repeat of the market conditions prevailing in the second half of March. But note how the rally in crypto and stocks effectively stalled, as oil surged from under $90 to over $105.
In a sense, this is a good thing: A rising oil market is merely causing a pause in an otherwise healthy crypto and stock market rally.
On the other hand, as I emphasized last week, the market is still very much headline driven. And worries are starting to return.
Here’s a concrete example: On Wednesday morning, both Bitcoin (BTC, “A-”) and the S&P 500 were starting to rally as oil traded sideways. Then, news broke that President Trump is seeking a semi-permanent blockade of the Strait.
Oil rallied. Stocks and Bitcoin sold off. I marked this point with a black dotted vertical line in the chart above.
What has been true for weeks continues to be the case today: Stocks and crypto are experiencing a benign macro environment.
But historic disruptions to the flow of energy and commodities still very much weigh on investors' minds. And their willingness to look past the headlines and price in a quick resolution to this conflict appears to be tenuous should the headwinds grow stronger.
Fortunately, it seems Bitcoin is still moving in line with what my liquidity indicators have outlined.
That is, a top near April 21 — which we got just a day late on April 22 when BTC broke above $79,000 in intraday trading — followed by a second, final top around May 9.
Already, Bitcoin has rallied roughly 3% in the past 24 hours, climbing from ~$76,000 to about $78,400 at the time of writing.
That’s the type of confirmation I look for. It tells us there’s more time for BTC to run … but the geopolitical environment means the ceiling of this bullish move is likely closer than we’d otherwise expect.
As we approach May 9, traders should take care to plan their exits ahead of time.
For investors, this means we’re another step close to our next big buying opportunity. After the May high … we’re headed for a key, 320-day cycle low.
That, according to my Crypto Timing Model, will likely be the final low of this crypto winter. For long-term holders, that’s the key window. One that offers the chance to load up on top cryptos at bear-market prices before the bulls take over.
To see when exactly this window will hit, and what assets my Crypto Timing Model will target this cycle, I suggest you watch my recent briefing here.
Best,
Juan Villaverde
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