Risky Bets Get Hammered

Downside Deluge. Risk assets got hammered this week, experiencing unprecedented levels of selling, the likes of which had yet to be seen in 2024. What happened in markets this week?

This week's lackluster price action was largely attributed to escalating conflicts in the Middle East and fears of a potential global conflict, however, it appears possible that the market is pricing in downside risk of other events.

Momentum has shifted decisively negative for the first time since markets began their upward ascension in October 2023; Bitcoin’s failed breakout last week combined with the fact that this force is now favoring bears gives credence to the possibility that a distribution range marking the top has already formed.

Equities had already been heavily sold throughout last week, but the losses were not over for the tech-heavy Nasdaq 100, which plunged 6.3% this week to close nearly 30 points off its Monday high, marking the index’s largest weekly decline since the end of the 2022 bear market.

While markets have technically reached oversold territory and are much healthier from a leverage perspective than they had previously been – suggesting that now may be the opportune time to bid – puzzlingly, realized volatility has remained suppressed throughout the selloff.

Bulls should be cognizant that a sudden unclenching of volatility would almost certainly drag the prices of risk assets under and may only mark the beginning of the drawdown, despite the intensity of current selling in comparison to recent history.

In crypto land, investors remain focused on the after effects of Bitcoin’s Halving and the impact it will have on price. The Halving is considered by many market participants to be a grail event practically ordained by Satoshi to increase the price of BTC; a failure for historical patterns to hold will almost certainly shake bulls out of this crowded trade.

Those hopeful for a continuation of the rally should pray that the Halving allows BTC to close above the Monday open at $66k; a convincing break below the key $60k support level makes $52k the immediate target and would lead many traders to reconsider bullish biases.