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There are a few major points to my macro thesis that I have tried to hammer home over the past year. In the first quarter of last year, I believed the initial breakout in the 10-year yield would snap the rally in high-growth tech companies, bitcoin, and eventually the broader market. Two of those things happened right on time, but then bitcoin bounced back and even the nastiest of bear markets in futuristic tech names didn't have the power to drag the overall index down when Apple and Microsoft were still grinding their way higher. Fits and starts in the reopening trade also provided pockets of support, but the most important relationship I've assumed over the last 18 months was that the U.S. stock market would peak whenever we suppressed the virus enough to prevent more stimulus from flowing in. And here we are, with America the closest to normal since the virus hit, and the Nasdaq is in a bear market. But holy cow does it look flimsy.
A hypothesis is no good if it can't be tested, and a prediction useless if it isn't falsifiable. As I wrote almost a year ago when I formally warned of the above macro outlook, the most obvious sign the thesis won't hold is if tech stocks and crypto rally in the face of interest-rate hikes by the Fed.
Welp. That's literally happening as we speak. The market shot out of a cannon seemingly the moment Jay Powell tried to pull out the dagger. Even the biggest permabull on the street is scratching their head right now. The central bank chief literally laughed at the notion he might lose sleep over pulling the lever for 50 basis points all year long, and then GameStop rallied 40% (after a complete embarrassment of an earnings). Are we reading the right tape? Are people this sick in the head? Or has the Fed's not-so-invisible hand over the market lost its grip?
The logic hasn't changed in my mind, but if the market tells me otherwise I, of course, will get in line. A few of the bullish boxes that I am looking for in a reversal have been checked: Nasdaq put in a higher-high even as yields rose, and cloud stocks broke out of their downtrend. Bitcoin is making higher lows, but the bigger box for bitcoin is breaking out above $45,000, and that remains unchecked. Tesla is under $1,000, albeit by a hair. And crucially, the U.S. dollar hasn't made a lower-low since its 18-month high earlier this month. My view is this rally will be part of a longer downtrend, but the faster those remaining boxes get checked, the quicker bears better start hedging their positions, or risk getting their foot caught in a deadly snare.
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