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  • Doug Wakefield

More Flashing Lights

Updated: Feb 19

Friday was the close of another monthly options week. If you are looking for a change, or a big change because you are watching “highest ever” prices, then what happens during an option week becomes very important. One market chart may not tell us much, but a collection raises our alertness.

What readings are showing up in the fear and greed indices?

On my last post on January 25th, we could see that CNN’s Fear and Greed Index had reached 77. I also mentioned that looking at the data over the year prior, the highest it reached was 83 (7/24/23), and the lowest was 20 (10/5/23). As shown above, these high readings hit 79 a week ago, and we closed this week still at 77.

I also discovered this week that there is a fear and greed index for cryptocurrencies. They too have seen a high greed reading this past week.

The Fear & Greed Index for Bitcoin, which aggregates data on market momentum, volatility, volume, and social media, is now at 79 out of 100, its highest score since Bitcoin reached $69,000 in November 2021.

Is this warning of an imminent crash? Frankly, since 2009, the word “crash” has continued to be “a bailout will come in a few weeks” or even a couple of days. However, as we saw in 2022, the markets can grind lower for months. We also know that when it comes to US stocks, we continue to watch “highest on record” prices.

But the Feds will cut rates and up we go again, right?

Around 2006/2007, I learned the bond markets LED the Federal Reserve, not the other way around. As one can see from the chart below, the reason Federal Reserve officials can jawbone about rate cuts and have not taken any action yet, is because the 90-day (3 month) T Bill rates continue hanging around the 5.4% rate.

We also know that the borrowing costs of the US government have skyrocketed as yields on US Treasuries have moved up sharply since the 2020 historic low, and as we saw in the last blog post, we are now in a long-term bear cycle on US treasuries.

We move on.

What about the bull market in Japanese markets? That’s good right?

Here is a chart I have produced many times over the years; the big bull market of the 1980s in Japanese stocks. At the time, the Japanese economy was booming.

Could the price of the Japanese Nikkei and headlines about Japan this last week be something Japanese stockholders - and stockholders elsewhere when watching the “extreme greed” technical readings - pay attention to right now? Watch for the Nikkei to fall back under that trendline shown in the chart below. Notice that this trend goes back to the 2015 high.

Could the NASDAQ be coming to another larger correction since its current move up in early 2023? Do you see any parabolic spikes, signaling that "the crowd" might be getting ahead of themselves?

There are many economic and geopolitical reasons that could be given to explain a sharp sell-off, but as we have seen for years now, central banks have destroyed the connection between market prices and the real world we live in. In the meantime, we must continue to try to understand where cycles change direction, and how that could impact us when they do.

As always, comments are welcome. Watch for flashing lights.

Disclaimer: Best Minds Inc was closed in 2018. I am retired. Nothing I am writing should be taken as advice to buy or sell any form of security or asset. Everyone must study and consider their own situation before placing money anywhere, as well as understand they are living in a time where major changes at the highest levels of money are taking place.

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