Author: Revc, Golden Finance

US stocks crashed, technology stocks were sold off

Tesla (TSLA.US) shares plunged 12% on Wednesday as its second-quarter profit fell short of expectations, marking its biggest drop since September 2020. At the same time, weak YouTube advertising revenue at Google's parent company Alphabet Inc. caused the Nasdaq 100 to fall about 3.7%, marking its biggest one-day drop since October 2022. The S&P 500 also fell 4.2% from its all-time closing high.

With the sharp sell-off in technology stocks, the S&P 500 experienced its worst one-day drop since December 2022, breaking the record of never having a one-day drop of more than 2% since the global financial crisis in 2007. Data showed that the U.S. stock benchmark index fell 2.3% on Wednesday. In the previous 356 trading days, the index had never fallen more than 2%, setting the longest record in 17 years. Last week, the index once exceeded the 200-day moving average by 15%, a level that has historically foreshadowed market sell-offs.

In addition, data shows that the S&P 500 has added $17 trillion in market value since hitting a low in October 2022, one of the best performances so far this century, second only to its performance in 2021. In the 141 trading days this year, the S&P 500 has only risen or fallen by at least 1% on 25 trading days, showing a decrease in market volatility. The valuation of technology stocks has entered the most frothy stage in history.

On Thursday, Eastern Time, the three major U.S. stock indexes closed mixed, the market fluctuated sharply throughout the day, and fell sharply at the end of the trading day, indicating that investors' panic has not subsided and more turbulence may occur in the future. After experiencing the most violent sell-off since 2022, large technology stocks continued to fall sharply at the opening on Thursday, and then rose rapidly, but ultimately failed to recover lost ground. Among the seven giants, only Tesla closed higher. Investors are still struggling to digest a series of disappointing financial reports, as well as political and economic uncertainties.

However, the latest data showed that the US economy is still resilient, which partially eased the market's decline. Data released by the Bureau of Economic Analysis of the US Department of Commerce showed that the US GDP grew at an annualized rate of 2.8% in the second quarter, far higher than the expected 2%. Also released was the preliminary value of the core PCE price index in the second quarter, which was 2.9% annualized, which was higher than the expected 2.7%, but significantly lower than the data in the first quarter and the same period last year.

Market attention to the Fed's decision has reached a peak

According to the CME Group's 30-day federal funds futures prices, the possibility of the Federal Reserve cutting interest rates by 50 basis points in September has increased significantly. Earlier, Bill Dudley, former president of the Federal Reserve Bank of New York, suggested that the Federal Reserve should cut interest rates as early as next week due to the possibility of economic recession, which is different from his previous long-held view of "keeping high interest rates for a longer period of time."

Data shows that at the Federal Reserve meeting on September 18, 2024, the probability of the target interest rate falling by 50 basis points to 4.75-5.00% has risen to 22.3%, a significant increase from 10.7% the previous day, and much higher than last week’s 3 %.

On the other hand, the probability of a 25 basis point rate cut to 5.00-5.25% dropped to 76.2%, a significant drop from 89.1% the previous day and a significant decrease from 95% last week.

In addition, the possibility of a 75 basis point rate cut is also increasing, with the probability of a cut to 4.50-4.75% rising to 1.5% from 0.3% in the previous trading day, while the probability was zero last week.

These probability changes indicate that traders' sentiment is shifting, especially the increased probability of a rate cut to 4.75-5.00%, suggesting that market expectations for two rate cuts before the September meeting are strengthening. Although the Fed's final decision is still unknown, traders believe that a September rate cut is a foregone conclusion, just a different magnitude.

Supported by GDP data, the Fed's urgency in cutting interest rates remains to be seen.

Data showed that the U.S. GDP grew 2.8% year-on-year in the second quarter, higher than the 2.0% forecast by economists and stronger than the 1.4% in the first quarter. In addition, the data also showed that inflationary pressures have eased, providing room for the Federal Reserve to cut interest rates this year as widely expected by the market.

Traders are now awaiting Friday's release of U.S. personal consumption expenditures (PCE) data, the Federal Reserve's preferred inflation indicator. The market expects PCE to increase 2.4% year-on-year in June and 0.1% month-on-month; core PCE is expected to increase 2.5% year-on-year and 0.1% month-on-month.

PCE, the Fed's preferred inflation indicator, was flat in May and up 2.6% year-on-year. Excluding food and energy, which are more volatile, core PCE rose 0.1% month-on-month and 2.6% year-on-year.

Strategic Level

Specifically at the strategic level, the volatility of crypto assets is greater than their directionality, so swing trading is a better choice. Taking SOL as an example, the best swing price for SOL in the near future is between 130 and 140, not 170 and 180. (Does not constitute investment advice)

There are countless Schrödinger's cats in the crypto market. You don't know whether they are alive or not until you open the box. Just like the trend of most cottage tokens is very random, especially MEME, so as mentioned above, the volatility of crypto assets is greater than their directionality, and the strategy level should formulate trading strategies based on the characteristics of the assets. In addition, do not exaggerate the role of K-line analysis. In most of the time in the crypto market, the validity period of K-line analysis does not exceed 12 hours, especially in the crypto market with multiple factors such as halving, ETF, election year, and interest rate cuts.

summary

As of before the U.S. stock market opened on July 26, the fear index fell nearly 5% from the previous trading day, and the US30 and US500 also experienced a corrective rise.

Since the probability of CME interest rate adjustment is based on the 30-day federal funds futures pricing data, the futures pricing data is used to analyze the possibility of the Fed's interest rate changes and US monetary policy adjustments. In other words, the judgment on interest rate adjustments may mainly come from interest rate traders. Due to the correlation of interests, interest rate traders' judgments are overly optimistic. Therefore, the possibility of a rate cut in September still needs to be further observed in economic and inflation data. For the crypto industry, it is still necessary to pay attention to the impact of volatility on strategies to avoid passive situations caused by excessive positions.