Crypto Collapse. CPI Report on Tap — Part 1
The inflation report will (and should) be the main driver for stocks.
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Our View
Today is the dreaded CPI number. Up to this point every release has been part of a big selloff in the indices. I know people are still calling for a big year-end rally, but this is not a normal year. If you think the S&P is going to rally, you should start looking at the Stock Trader's Almanac data for the stretch that occurs after Christmas.
Like the PitBull said to me, I am going into the inflation report flat, as the ES could be up 100 points or down 100 points. The machines are going to run wild when the numbers come out at 8:30. Here’s what estimates call for:
I will do a morning update on how I see the ES and NQ after the 9:30 open. Outside of the bigger levels, there’s no way to pre-plan for a binary event.
Crypto Collapse — A Floor Trader’s Take
I am not a theorist, but like the late-day MOCs I always think there is some type of front run. From November 3rd to November 8th, gold rallied over $100/oz and silver rallied almost $3/oz or 15%. So who knew? Because someone always knows.
Then a few days ago, Bitcoin started making new lows as the crypto exchange FTX suffered a major liquidity crisis. Binance was supposed to step in and take over, but now it appears it is walking away after a quick inspection of FTX’s books. FTX CEO Sam Bankman-Fried had a net worth of $16 billion that evaporated overnight.
There is now a small contagion risk, as some of FTX investors include Tiger Global, Sequoia, SoftBank and others.
The reason I’m writing about this is because I made several end-of-2021 predictions. I was very bullish on oil, pretty bearish on the S&P given that it was trading at all-time highs, but ultimately, I was bullish on Bitcoin too. I got that one wrong.
I have never believed in cryptocurrencies as a mainstream investment vertical and the main reason is because I felt it was impossible to regulate.
That said, Bitcoin buyers had no sense of risk management. Even if they were bullish, they weren’t being disciplined. After Bitcoin broke through 50,000, the cryptocurrency pushers were as unphased as they were when it broke 40,000 and 30,000, and after it hung at the 20,000 level for months the pushers were still saying BUY BUY BUY. I
Yes, I was 100% wrong on my year-end call but I knew the call was wrong in the first few months of the year. I can't say the Bitcoin is going to zero, but it sure looks like it's on its way lower. It was a Ponzi scheme from the beginning and it always will be. The PitBull and I always talk about how it's easy to buy, but traders with little to no experience never have learned to sell.
As he has always said the profits are never booked until you get out!
Our Lean — Danny’s Take
Yesterday we said that “if we flush lower this a.m. and retest the 3792 to 3800 area, I am looking to buy the initial dip.”
The ES and S&P actually gave us three buy chances out of this zone, with a low of 3800, 3795 and 3788. Eventually though, the sellers cracked this level and the ES flushed down to 3750.
The CPI is now the main driver.
Our Lean: In the View, I mentioned that we can map out the big levels, but beyond that, we need to see how the market is reacting to the CPI print. In other words, is “big” support or “big” resistance containing the move or is it breaking?
Here’s what I’m watching.