Day Hagan Tech Talk: Poster Child
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Summary
Bitcoin, the poster child for risk-on versus risk-off, continues to stress risk-off. Let’s revisit the S&P 500’s short-term Low-Rally-Retest bottoming sequence, including what could occur going forward and what we do and don’t want to see.
Risk On versus Risk Off
Bitcoin tangentially represents Wall Street’s current willingness to take on risk (buy = risk-on) or reduce risk (sell, reduce, or hedge = risk-off). Bitcoin’s message today indicates that investors are currently leaning into a risk-off attitude. And despite today’s tariff announcement, policy uncertainty is likely to remain elevated. The net result is expected price volatility in both directions, suggesting a risk-off position.
With a potential “liquidity drain from the markets as investors are forced to pay last year’s big capital gains tax bill” (3Fourteen Research) coupled with the volatility that normally surrounds upcoming quarterly EPS reporting, is it any wonder that risk-off has been the stance of many investors and traders as far back as late 2024, when the first negative breadth divergence (non-confirmation) occurred?
Figure 1: Bitcoin with falling 50-day MA (red dashed line). | Price trend remains defensive (risk-off), until/unless a decisive close above ~90,000 to 91,500 occurs. Until then, a target of ~74,000 to 70,000 and maybe 65,000 (previous breakout range and uptrend line) shouldn’t be dismissed.
Figures 2 and 3 show other elements joining the fray relative to reducing risk (risk-off). While Figure 2 depicts a condition that is still low from a historical perspective, the trajectory of the move (widening) is concerning.
Figure 2: U.S. High Yield Index Option Adjusted Spreads. | How this spread reacts to today’s “Liberation Day” announcements and future announcements will be an important short-term guidepost.
Figure 3: Crude Oil and Inflation Index. | These two have, for the most part, moved in lockstep. Closely monitor Crude Oil as I think it could be vital in the fight against inflation/inflation expectations!
Follow Up: Steps for a Bottoming Process
Following the domestic equity market’s heart attack-inducing decline, we prefer a methodical repair process. This is especially considering the large amount of chart damage that has occurred since the first negative breadth non-confirmation in early December 2024, which was followed by two more non-confirmations—one in January and a third in mid-February. Chart-wise, this rehab process takes on the shape of a “W,” a Low-Rally-Retest sequence. This sequence consists of the following three steps, all of which have been completed: Oversold, Rally (longer than a day or two to suggest more than short covering), and Retest (over a multi-week period and which exhibits less downward selling pressure during the retest)—Figure 4.
Ideally a fourth step occurs, though not always, which is Breadth-Momentum Thrusts. We experienced one momentum thrust prior to the “Retest” step, but none since. We prefer more to occur, ideally in clusters.
Figure 4: S&P 500 with falling 50-day MA. | Following the recent retest, a decisive violation of the twin-lows (support) would increase the odds of a cascade of selling because weekly and monthly momentum (not shown, reach out for chart) is negative. Resistance is in red, support is in green.
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Art Huprich, CMT®
Chief Market Technician
Day Hagan Asset Management
—Written 3.31.25 and 4.1.25. Chart source: Stockcharts.com unless otherwise noted.
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