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Bitcoin hasn’t earned a starting role in a Daily Equity Report in quite some time, but it certainly isn’t for lack of try. After spending the majority of 2022 in the doghouse, Bitcoin (amongst the rest of the crypto cohort) has had a productive 2023, up over 80% since January 1st. This positive performance has led to a series of productive technical developments, including $BTC re-entering a positive trend and posting its first buy signal against MNYMKT for the first time since late 2021. A previous cryptocurrency piece linked Here provided returns following historical RS buy signals in favor of the crypto king, with an impressive near 90% hit rate on positive future 1-year returns after posting such a signal. All things considered, the path of least resistance appears higher for the coin, and with its recent breach of $30,000 for the first time since falling through it last May, Bitcoin has certainly earned a second glance from the average investor.

With the understanding that Bitcoin’s volatility isn’t suitable for every client, it can often be fruitful to observe how the equity markets and $BTC are interacting with one another. The chart on the left is simply measuring the percentage of days that Bitcoin and NDX/SPX move in tandem. In other words, what percent of trading days (excluding weekends) do Bitcoin and more traditional domestic equity indices rise or fall on the same day? While 2023’s partial data does show a downtick in the percentage over last year, there has been a distinct rise in the observed percentage over the last 12 years; with 2022’s numbers eclipsing 65% of mirrored movement for the first time in recorded history. The chart on the right shows a slightly more traditional rolling 12-month correlation coefficient. A similar picture here is shown: While the last few months have notched a now noticeable downtick in the price return correlation between [$BTC ] and SPX/NDX, there is certainly a point to make about where such correlation stands today in comparison to a decade ago. Another interesting point seems to emerge when you consider the two points at which price correlation was its highest: at market extremes. Both 2020 and 2022 saw spikes in correlation, but as we all well know… ended up in very two different places by the end of the year.

One final part of today’s report is an interesting relationship between Bitcoin as a “virtual” gold and the physical commodity gold. As we know, (GC/) has had a productive year, up over 10%. This has led the broad Commodity group into second place within the broad asset class rankings. Precious metals remain in the first position of all 134 groups on the asset class group scores page suggesting continued strength from the area. While today’s report isn’t a deep dive into the technical strength of GC/, it is worth noting the price return correlation between $BTC and GC/ is at a seemingly key level. While certainly not statistically significant, the correlation between the pair seems to top out at .30 from a historical perspective. From there, the correlation has seen a sharp drop off. While the most recent challenge of .30 in 2020 was followed by a breakthrough of the threshold, it seems like it is a breaking point for one reason or the other.

All things considered, continue to watch how Bitcoin’s price is moving going forward. While it may not be a mainstay in a traditional portfolio, price action suggests it may move more like our traditional equity markets than one may think. 

This week, commodities moved up to overtake cash for second place in the DALI asset class rankings. One contributor to the increase in the strength of commodities has been energy prices – crude oil has gained more than 19% since hitting a 52-week low in March. Also contributing to the strength of commodities is a recent resurgence in precious metals. Since the beginning of March, gold (GC/) has gained more than 9%, while silver (SI) is up over 21%; and silver now ranks fourth (out of 21 assets) in the continuous commodity matrix.

One factor helping to drive the strength in precious metals is that bond yields, both real and nominal, have dropped significantly since the beginning of March as investors reassessed the likelihood of additional rate hikes and flocked to the relative safety of Treasuries in the face of regional bank failures last month. Declining real yields make bonds less attractive and make other stores of wealth, especially those with values that tend to increase with inflation, more attractive. Of course, the reverse is also true, when real yields increase, it makes bonds more attractive relative to assets that don’t produce any income. As you can see in the charts below, there is an easily discernable inverse relationship between precious metals prices and real yields.

There is evidence to suggest that the current trend in Treasury yields is to the downside. Both the five- (FVX) and 10-year (TNX) US Treasury yield indexes are on sell signals and in negative trends on their default charts. Meanwhile, the Fed futures market is pricing in a better than 80% chance that the Fed will cut rates by at least 25 basis points from the current target of 475 – 500 bps. Of course, TNX, FVX, and the fed funds rate are nominal rates, so a significant drop in inflation, could result in higher real yields even if these nominal yields decline. However, all else being equal, if the trend in yields continues and the market’s prediction for rate cuts later this year is accurate, it could act as a continued tailwind for precious metals. For those interested in adding exposure to precious metals, the most readily accessible way to do so may be through an ETF like the iShares Silver Trust (SLV) or the SPDR Gold Trust (GLD).

The iShares Silver Trust (SLV) currently has a strong 5.67 fund score and a positive 4.58 score direction. On its default chart, SLV returned to a buy signal last week when it broke a triple top at $23, taking out resistance that had been in place since January. However, while it shows a decidedly strong technical picture, SLV now sits in heavily overbought territory with a weekly overbought/oversold (OBOS) reading north of 100%. So those interested in adding exposure to the fund may be best served to do so on a pullback or to wait for prices to normalize near current levels. On its default chart, SLV shows no support until $18.50, more than 25% below its current level. However, on its $0.125-per-box chart, the fund has recently found support at $22.63 and $21, so investors looking to add exposure on a pullback could potentially target one of these levels.

The SPDR Gold Trust (GLD) shows a similarly strong 5.73 fund score and 3.71 score direction. GLD has completed two consecutive buy signals, most recently breaking a double top at $182 in mid-March. The fund currently sits at $190, and it also sits in heavily overbought territory with a weekly OBOS reading just under 80%. On its default chart, the first level of support sits at $170; however, on its $1-per-box-chart, GLD has recently found multiple levels of support between $180 and $185.

For those considering adding positions in GLD or SLV it is worth noting that both funds hold physical metal, as opposed to exposure gained through futures contracts. Due to this structure, gains on positions are taxed as collectibles – the same as if you owned silver or gold bullion – which is generally higher than the rate on other investments. One upside of this structure, is that owning these funds will not generate a K-1, as is the case with most commodities funds that gain their exposure via futures contracts.

One of the best uses of the Asset Class Group Scores page is to keep track of key groups and their relationships with one another. There are plenty of relationships worth keeping an eye on, but there will be two focused on today. The first is the All Value Funds vs All Growth Funds group. This relationship has been featured before and was extremely beneficial in the rotation away from growth funds last year. With the growth-led rally to start the year, the two groups have been nearly tied in score for the last three weeks. Score crosses have been notable in the past and often lasted for at least a few months to even a few years. In the short term, the All Growth Funds group has exhibited higher absolute strength which is evident from its score direction of 1.50 compared to the All Value Funds group’s score direction of 0.23. However, this is not enough to put the growth representative in favorable long-term standing against value. For the time being, either option would be viewed as reasonable given they share the same average score. Right now, there is a good mix of value and growth sectors with average scores above 3.0 which speaks to the lack of outright leadership from either value or growth.

A second key relationship to watch is between Consumer Non-Cyclical and Consumer Cyclical groups. This has been a great relationship to watch as it gives insights into the risk appetite in the broad market. When Consumer Non-Cyclical holds the lead, it is often associated with poor broad market conditions (for more click here). Like the All Value Funds vs All Growth Funds relationship, Consumer Non-Cyclical and Consumer Cyclical’s scores had converged earlier this year with neither group able to take leadership over the other. This changed at the beginning of April. Consumer Non-Cyclical has pulled away and now has an over 0.50-point score lead. This is also coupled with Consumer Cyclicals in danger of scoring below 3.0 which it spent all of 2022 below. The recent divergence between the two groups may also indicate the future winner of the growth and value tie.

Looking at the 0.25-point chart for the Consumer Staples Select Sector SPDR Fund (XLP), it’s clear to see the recent improvement after the technical deterioration experienced in the first few months of the year. XLP was able to return to a positive trend on this chart and is now trading on three consecutive buy signals. The fund has an acceptable fund score of 3.49 and a positive score direction of 1.47 which highlights the fund’s improvement. XLP offers a yield of 2.48% and has an rRisk of 0.79, so it could be a lower volatility equity income option as well as a sector play. From its current level, support is offered at $74.75 with further support at $71.50.  

Daily Option Ideas for April 13, 2023