Goldman Sachs analysts are warning of a deep dive in the S&P 500 and other American indices this week, move that may erase some or all the gains made on Friday. That warning means that the crypto market may be vulnerable as well since Bitcoin and altcoins often drop when stocks are falling.
Goldman Sachs Warns on S&P 500 Index
Goldman Sachs noted that the blue-chip S&P 500 Index had moved to a key level that triggered Commodity Trading Advisors (CTA) to sell equities. It expects that these strategies will remain net sellers this week, exiting positions worth about $33 billion. Worse, if the S&P 500 Index moves below $6,707, it may trigger sales worth over $80 billion.
The volatility in the stock market will be elevated as many S&P 500 Index constituents continue to experience thin liquidity and short gamma positioning. Goldman Sachs analysts noted that the top-of-book liquidity has slumped to $4.1 million from the daily average of $13.7 million.
The S&P 500 Index will also react to earnings by some of the biggest companies in the US. While big banks and Magnificent 7 companies have released their numbers. Hundreds of companies like Coca-Cola, Apollo Global, Cisco, Applied Materials, and T-Mobile will report their numbers.
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This Warning May Impact the Crypto Market
Goldman’s warning on the stock market will likely have a major impact on cryptocurrencies because of the correlation between the two assets.
A good example of this is what happened last Friday when Bitcoin and other altcoins rebounded as the stock market rallied. Bitcoin price jumped from a low of $60,000 on Friday and moved to $70,000 as the S&P 500 and Dow Jones soared.
Like the stock market, it is facing substantially low liquidity, with volume and futures open interest falling. Data compiled by CoinGlass shows that the futures open interest has plunged from last year’s high of over $255 billion to $98 billion today.
Also, as we warned on Saturday, there is a likelihood that the recent crypto rebound is a dead-cat bounce, a situation where an asset in a freefall rebounds briefly and then resumes the downtrend. Besides, Bitcoin and most altcoins remain below all moving averages and the Supertrend indicator, meaning that the sell-off may not be over.
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