Stock Market Needs a Breather

Is Moody’s Downgrade an Excuse for a Correction?

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Today we will be covering...

  • Today, we will examine Ethereum (ETH)

  • We will also discuss Moody’s after-hours downgrade of the US government’s credit rating on Friday.

Moody’s Downgrade of US Credit

  • In after-hours on Friday, Moody's Ratings Service has downgraded the U.S. government's credit rating from Aaa to Aa1 due to rising debt and interest payment ratios "significantly higher than similarly rated sovereigns". 

  • Is this a “nothing burger?” Anything new that serious investors do not know?

  • There can be adverse initial reactions from algos, short-term traders, and “nervous nellies” investors, but then the market will likely return to its intended path.

  • The stock market is overbought by multiple measures, and this downgrade may be the needed “excuse” or trigger to relieve the overbought conditions.

  • Could it be something more? What happened in the previous instances? Let’s us explore.

  • S&P Downgrade (Friday, August 5, 2011) from AAA to AA+: 1. Next trading day, S&P 500 fell 6.66%, and 2. VIX surged to 48.3 from 22.5 (exacerbated by the Eurozone debt crisis).

  • Fitch Downgrade (August 1, 2023) from AAA to AA+: 1. Next trading day, S&P 500 declined around 1.4%, and 2. VIX rose 8%.

Ethereum (ETH) Cycles

  • The daily and weekly cycle composites of ETH are shown below.

  • The Pro newsletter content will present the cycle price projections and the Elliott Wave analysis. 

Sentiment & Technical Analysis

  • The CNN’s Fear & Greed Index (FGI) is approaching Extreme Greed, which is >75.

  • The FGI is at about Oct’24 extremes and above Nov-Dec’24 and Feb’25 highs.

  • Could it get higher?

  • McClellan Oscillator (top) reached an extreme overbought level a week+ ago and has been declining since, while SPX was rocketing higher after US-China tariff news 

  • This kind of divergence often precedes a pullback in SPX.  

  • McClellan Summation Index (bottom) is still on the swing buy signal. Sometimes it peaks coincidentally with SPX, while at other times it peaks before SPX.

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