Futures are indicated higher to start the week, but the big story this morning was massive volatility in cryptocurrencies. Much of the losses have been recovered, and indications are that Bitcoin is moving back to where it was when equities closed a 4 pm ET on Friday, but it has been a wild ride.
One of the big problems for cryptos appears to be liquidations of margin accounts. Small, speculative traders that have used available leverage are being wiped out, and that is a major contribution to the massive swings that are occurring.
The key question on the mind of many traders is what impact does crypto volatility have on equities. Will speculative traders move back to the relative safety of stocks? Will they take what capital they have left and find some other game to play? Any YOLO trader that used high levels of margin probably has already been washed out, so that may help to put a bottom in cryptos.
Equities aren't nearly as bad, but much of the market is also in a state of flux. The rotation out of growth and speculative names and into value and commodities has slowed and even started to reverse, but it is a choppy and uneven process. Many speculative traders were relieved last week to finally see some better action in groups like biotechnology, SPACs, EVs, and other secondary groups, but many of these stocks have been in a downtrend since mid-February. Whether or not they continue to recover is going to be the focus of many market players this week.
China roiled the cryptocurrency market with a crackdown, and now it is causing issues for commodity markets as it is warning against speculative trading. Oil is rebounding, but metals are a mess.
Traders will be focused again on the ARK Innovation ETF (ARKK) and other growth names as well. On Friday, ARKK managed its highest close since May 7 and has many traders feeling optimistic that maybe the high-beta, high-growth names may finally be on the mend after a months-long correction. The FATMAAN names have been struggling, but the DJIA continues to hold up relatively well. The rotational action is no longer as lopsided as it had been, and we will see to what degree it reverses this week.
It is a tricky market out there as rotational action is shifting, and the speculative drama in cryptos shakes things up. I'll be focusing on some individual stock picking and will be managing positions carefully, but I'm expecting some inconsistent action.
