Social Media drags Tech stocks, Dollar rebound continues, Oil down, Gold steadies, Bitcoin corrects

Investors are hitting the pause button with the relentless buying of US stocks as big-tech’s actions following the mayhem at the Capitol drags sentiment down.  Social media platforms have taken some strong positions following the Capitol riots and that is raising expectations that when the dust settles, Congressional efforts to regulate big tech will become high on the agenda.  The banning of President Trump’s major social media platforms was expected as big-tech tries to distance themselves from last week’s riots that left five people dead.  Facebook, Apple, Alphabet, Facebook and Twitter are off session lows but for many traders the increased chances of legislation on privacy, antitrust, and Section 230 have changed their fundamental outlooks.  For stocks to completely get their mojo back, big-tech fears need to ease.    

House Democrats begun the impeachment process today as they charge the president with “incitement of insurrection”.  The House however may not send over the article of impeachment to the Senate until after inauguration day.  

Adding to the selling pressure is the belief that despite the Democratic sweep in Georgia, the Biden administration will still struggle to implement their agenda as Conservative Democrats Manchin from West Virginia and Tester from Montana, will prove difficult to win over.  The deficit is a big concern for Republicans and conservative Democrats and that might bring down the final price tag of stimulus that Biden is able to push through Congress.  The economy will still get its stimulus and infrastructure spending, but they may be somewhat smaller than initially anticipated.  

Dollar

The dollar rally continues as traders continue to cover their short positions.  After seeing bearish near a decade high at the end of the year, the consensus trade for a weaker dollar on Wall Street is unraveling.  The dollar’s rebound coincides with the steep rise with Treasury yields.  The upcoming week is filled with Fed speak that will likely draw attention to the policymakers’ comfort level for the steep rise in yields.  The Fed may allow yields to arise a little more, but eventually they will put an end to this as it poses a risk to the economic recovery.  

Oil

Crude prices are paring losses as the dollar rally stalls and after Pfizer and BioNTech boost their coronavirus vaccine targets for this year.  The rally with oil was getting out of hand and prices needed to pullback as the uncertainty over short-term crude demand remains elevated.  

Not only are virus lockdowns a risk but the implementation of vaccines is still hurdled with many logistical issues.  The process of determining who is eligible is constantly changing and signing up is not as easy as it should be.  Vaccine rollouts should go smoother under the Biden administration.  

Chinese crude demand has been a bright spot for the oil market, but that could quickly end if China steadily sees new clusters. Beijing has clearly showed they will not hesitate in preventing the spread of COVID-19 infections and that will likely mean the new strain raises the risks of more lockdowns. 

WTI crude has had quite the run since election day and prices should start to consolidate around the $50 level.  

Gold

Gold appears to be fighting for its life as many technical analysts salivate or some strong technical selling indicators.  After forming a potential double-top at around the $1950 level, gold prices had steadily declined below many key moving averages, potentially suggesting further pain is on the way.  

Gold’s weakness is all about the tentative rebound in the dollar.  Higher Treasury yields have come along with a stronger dollar that needed to force the covering of the overcrowded bet against the greenback, which has driven down gold prices.  

Despite charts that suggest gold looks like a falling knife, the fundamentals still make a sound argument for higher gold prices.  The economy can’t warrant the current trajectory of Treasury yields and that will force the Fed to talk down rates and eventually adopt yield curve control.  Gold is currently at key support, but if weakness persists all eyes will be on the $1770-$1800 range.  

Bitcoin 

Bitcoin is getting pummeled as institutional money and hedge funds ride the current freefall.  Bear market plunges and excessive volatility are powerful agents that scare away the uninitiated.  But we are initiated and would like to point out that this was to be expected and that we already saw a near 20% decline earlier last week.  (referencing my note from January 7th) 

Bitcoin is still up on the year and the current ~22% crash won’t intimidate any of the new institutional money that just hopped onto the crypto bandwagon.  Risk aversion and a strong dollar led to the Bitcoin’s collapse as long positions got unwound and hedge funds accelerated the move by hitting the sell button.  Bitcoin could attract some interest if prices near the psychological $30,000 level.