New Record Highs or Dead Cat Bounce

The Ivory Hill RiskSIGNAL? is green, and any pullback should be viewed as a buying opportunity. The trend is more important than any single data point. Our short-term volatility signal flipped green today so we are favoring higher-beta equities over lower-beta equities.

In a bull market, the ones who get paid are buyers, not sellers. High-beta stocks are dominating low-beta names, confirming that we should increase risk. Momentum favors those who embrace volatility—it’s the price of playing the game. This is exactly the type of price action we can expect for at least the next few weeks.

SPX Gamma Exposure:

Dealers have moved further into positive gamma territory after starting the day neutral, so we can expect suppressed volatility in the near-term.

Our Gamma Exposure system monitors the estimated flows generated by market makers employing delta-neutral hedging strategies. These flows play a crucial role in influencing market behavior, either reducing or increasing equity market volatility.

In a positive gamma environment (green line to the left of the white line), market makers buy the underlying asset when prices decline and sell when prices rise. This activity helps to stabilize the market and limit volatility.

In a negative gamma environment (green line to the right of the white line), market makers sell the underlying asset as prices fall and buy as prices rise, which can lead to greater volatility and more pronounced market swings.

Bitcoin

Since October 2024, we’ve maintained a 2–4% position size in Bitcoin across our momentum strategies, using proxies like the IBIT ETF, MSTR, or MSTU ETF. This week we’ve increased our position size to 3–6%, depending on the model. Given current market dynamics, I think Bitcoin will be a standout performer in 2025. If we approach or achieve new all-time highs, we’ll position more aggressively—targeting a 8-10% position size in our core models and potentially nearing 20% in our Ultra Aggressive Momentum Strategy.

Do not use my statements above as buy or sell triggers because I could change my mind tomorrow for any reason whatsoever and I will not give you a heads up because I am not in the business of sending out real time trading alerts.

Bitcoin is currently trading comfortably above its 21-day moving average, a positive near-term technical signal near all-time highs. This strength supports the ongoing bullish narrative for Bitcoin and the broader cryptocurrency market, making it an exciting space to watch and participate in.

In the current reflationary environment—characterized by accelerating economic growth, rising inflation, and a hawkish Federal Reserve—Bitcoin and other high-beta sectors tend to thrive. However, I expect the macro environment to shift next month to stagflation, defined by slowing economic growth, persistent inflation, and a more neutral Federal Reserve. Historically, this has been a challenging backdrop for Bitcoin. Keeping a close eye on the economic calendar for early indicators of slowing growth is crucial to staying ahead of this transition.

In 2025, do not be surprised by aggressive sector rotations, leading to significant upside and downside volatility across all asset classes.

This asset class is undeniably volatile, making it essential to respect the trend. Growing technical evidence points to the potential for sideways consolidation around the $100,000 level, which warrants close attention.

Key support levels to monitor include $91,615, representing post-election support, and the previous record highs from the first half of 2024 at $73,745. If BTC breaks below the $91,615 level, we will reduce exposure to the minimum position size or exit completely.

Energy Stocks

Last week, I emphasized that the deflationary impact of energy is likely behind us, and we are positioning accordingly. I’m looking to increase exposure to energy stocks on pullbacks. My focus remains on either a close near 85 or a breakout above 98 to add exposure. Inflation is expected to keep accelerating, and our strategy is clear: own the assets driving inflation.

Bottom line: Today’s price action was undeniably bullish. However, it’s crucial not to overlook the persistent technical risks that have loomed over this market for the past year. With that in mind, I want to revisit the recession dashboard this week.

Lessons From Past Recessions - Four Technical Indicators to Watch

As I've been pointing out for some time now, this market has an 85% correlation with the summer of 2007. After analyzing the strongest correlations, I've narrowed it down to four key technical indicators that are critical to watch closely.

The VIX

During late-cycle phases, the VIX typically stays low, forming a pattern of lower highs as investor complacency sets in, with a growing number of short-volatility trades in response to resilient equity markets. Notably, each recent recessionary bear market has been preceded by the VIX reaching a 52-week high.

• Recession Signal Triggered August 2nd, 2024

The Yield Curve

An inverted yield curve during an equity bull market should not be overlooked, but it’s also not an immediate reason to sell, as significant cyclical bull market gains often happen during these inversions. The key recession signal to focus on is rapid bull steepening in the 10Y-3M spread.

• No recession signal triggered.

Credit Spreads

Historically, credit spreads have been a valuable indicator for equity investors, as tightening often reflects strong risk-on flows into stocks and high-yield corporate bonds. However, a sharp widening to 52-week highs in credit spreads serves as a key warning sign of a potential recession.

• Recession Signal Not Yet Triggered

Samp;P 500 Price Pattern

The S&P 500’s price movements can provide valuable insights into whether the market is approaching a cycle peak. As the last "domino to fall," a pullback in the index, followed by an unsuccessful attempt to reclaim recently set record highs, often signals a recessionary pattern seen at market tops.

• Recession Signal Potentially in Progress

And remember - The one fact pertaining to all conditions is that they will change.

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Best regards,

-Kurt

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Kurt S. Altrichter, CRPS?

Fiduciary Advisor | President

Email: [email protected] | ivoryhill.com