Bitrabo Editorial
The S&P 500 Index (SPX) has broken through long-term resistance today and reached its highest level in more than a year. This could signal a resumption of the uptrend in the cryptocurrency market if there is a positive correlation with the Bitcoin price.
What Is the S&P 500?
The Standard and Poor’s 500, or simply the S&P 500 (SPX), is a stock market index that tracks the performance of the 500 largest companies listed on stock exchanges in the US. It is one of the most widely tracked stock market indexes. The index is market capitalization-weighted and as of August 31, 2022, the nine largest companies on the S&P 500 list accounted for 27.8% of the index’s market capitalization. These companies are Apple, Microsoft, Alphabet, Amazon.com, Tesla, Berkshire Hathaway, UnitedHealth Group, Johnson & Johnson, and ExxonMobil.
The SPX listing dates back to the 1950s and the index has been in a long-term uptrend ever since. It reflects the health of the US economy.
SPX Reaches New Yearly High
The SPX had been in a downtrend since reaching the all-time high (ATH) of $4818 on January 4, 2022. A bear market followed and it reached a bottom at $3492 on October 11, 2022. The price followed the descending resistance line (black).
Since then, SPX has initiated an uptrend and has risen 24% to today’s valuation at $4338. At the beginning of 2023, the descending resistance line was broken through and subsequently validated as support (orange circles).
At the same time, the SPX price struggled with resistance in the $4200 area (green line). If a correction occurs, a bullish re-test of this level is expected.
The SPX broke through another important resistance at $4325 today, the high reached in August 2022. If the increase does not turn out to be just a deviation and the uptrend is maintained, the next resistance level is at $4635. This will be the last stop before the ATH at $4818.
The Relative Strength Index (RSI) has not entered the overbought territory yet. However, for the past 1.5 years, whenever the RSI reached the 70 area, the price would record a local peak and drop (blue areas).
One analyst on Twitter, @MisterSpread, suggested that even if the SPX price now fell to the $4200 area, it would still be a bullish signal. In his view, the S&P 500 may be entering a “mania phase, when markets can stay irrational longer than people can stay liquid.”
Does Correlation With BTC Indicate a Bounce in the CryptoMarket?
The long-term correlation of the S&P 500 index with Bitcoin remains mostly positive. This applies to both downward and upward trends. For example, the correlation of the two assets remained positive throughout almost the entire 2022 bear market.
Only at the end of the year did the correlation become negative. At that time, the SPX was already in an accumulation phase, and BTC was still hitting a macro bottom due to the FTX crash and its aftermath in November 2022. However, the SPX increase and negative correlation with BTC at the time could have served as an early signal of a bullish trend reversal.
A similar situation occurred in February/March 2023. The correlation turned negative for a brief period. This came as Bitcoin’s correction proved much more severe than the mostly sideways trend of the S&P 500.
Currently, we are seeing a negative correlation since mid-May. SPX is increasing and breaking through an important resistance level, while BTC is stuck in a sideways and slightly downward momentum. If the situation plays out similarly to the previous two cases, the cryptocurrency market can be expected to follow traditional assets’ footsteps.
This could lead Bitcoin to retest and perhaps even break through the resistance at the $31,000 level. However, if the positive correlation is regained by the joint decline of both markets, the nearest support for the BTC price will be the 200-day moving average at $23,600.
For Bitrabo’s latest crypto market analysis, click here.
Disclaimer
In line with the Trust Project guidelines, this price analysis article is for informational purposes only and should not be considered financial or investment advice. Bitrabo is committed to accurate, unbiased reporting, but market conditions are subject to change without notice. Always conduct your own research and consult with a professional before making any financial decisions.