Risky assets retreat on valuation concerns: US tech and Bitcoin analysis

US equities tumble on valuation fears

The S&P 500 declined 1.2% overnight, while the tech-heavy Nasdaq 100 dropped 2.0%. High-profile Tesla and Nvidia bore the brunt of selling, falling 5.2% and 4.0% respectively. The sell-off highlighted growing concerns about US stock valuations after a strong year-to-date rally.

Palantir, arguably the most expensive stock in the S&P 500 by various metrics, plunged 7.9% despite announcing positive financial results. The market's reaction underscored investor nervousness about premium valuations, even when companies deliver solid earnings beats.

The S&P 500 now trades at 23.1 times forward price-to-earnings ratio, according to Factset data. This represents a significant premium to the five-year average of 19.9 times, and marks the highest level since September 2020.

Valuation concerns have intensified as the index has climbed higher throughout the year. Investors are questioning whether current price levels can be sustained, particularly on stocks boosted by the AI boom if interest rates remain elevated for longer than expected.

Strong earnings underpin market gains

Despite the pullback, the year-to-date rally has fundamental support. Approximately 63% of S&P 500 constituents have released third quarter results as of 31 October.

Corporate earnings have proven robust, with 83% of reporting S&P 500 constituents exceeding earnings expectations. The blended earnings growth rate currently stands at 13.8%, surpassing the growth rates achieved in both the first and second quarters.

The earnings season has provided solid evidence that valuations, while elevated, are mostly backed by genuine profit growth rather than pure speculation.

Technical perspective on US Tech 100

The recent pullback represents a healthy calibration after an extended rally. From a technical analysis standpoint, we highlighted signs of weakening bullish momentum in the US Tech 100 in the latest Weekly Market Navigator, suggesting a correction could be imminent.

The index currently sits at the support of its 20-day moving average and the lower bound of an ascending channel formed since mid-May. These technical levels will prove crucial in determining whether this represents a brief pause or something more significant.

A 50% Fibonacci retracement of the last upward wave could take the index towards 24,635. The critical support zone lies around 23,000. A failure to maintain support at that level would significantly increase the probability of a bear market developing. Until then, the decline could be interpreted as a correction rather than a major reversal in trend.

Figure 1: US Tech 100 index (daily) price chart

Cryptocurrency markets face steep losses

Cryptocurrency markets also experienced severe turbulence overnight. Bitcoin fell 6%, briefly dropping below 100,000, while Ether plunged 11%.

From its early October peak, Bitcoin has declined as much as 22%. Ether's drawdown proved even steeper at 36% from its highs. The cryptocurrency market officially entered a technical bear market, defined as a decline of more than 20% from recent peaks. This represents a dramatic reversal from the optimism that prevailed just weeks ago.

The Bitcoin sell-off began immediately after the asset reached a new record high of $126,212 on 7 October. Risk-off sentiment from regional bank credit events and threats of 100% US tariffs on Chinese goods triggered the initial decline. Despite the correction, Bitcoin remains 7% higher year-to-date.

Record liquidations reveal market stress

Cryptocurrencies recorded their largest single-day liquidation event on 11 October, with liquidations exceeding $19 billion according to Coinglass data. These forced position closures amplified the sell-off, creating a cascade effect as leveraged traders were stopped out.

While liquidations have since stabilised, sentiment towards Bitcoin has not recovered. Exchange-traded fund (ETF) flow data reveals net outflows of $986 million since 27 October, indicating sustained selling pressure from institutional and retail investors alike.

Options positioning fails to show clear direction

Options data from Deribit reveals strongly divided opinions on Bitcoin's near-term trajectory. Open interest on call options with strike prices above current levels (indicated by blue arrow in chart) slightly exceeds put options with strikes below current pricing, suggesting marginal optimism.

However, put options with an $80,000 strike commanded the highest open interest. This clustering suggests many traders are positioning for further downside, hedging existing positions or speculating on continued weakness. The market currently has no consensus on direction.

Figure 2: Divided views on BTC for options expiring on 28 November

Technical indicators suggest further downside risk

Several technical indicators point to the possibility of additional losses ahead. The moving average convergence divergence (MACD) chart has yet to exhibit signs of improvement.

The latest price action shows characteristics of a corrective Wave C under Elliott Wave Theory. Typically, Wave C should match or exceed the magnitude of Wave A, which would take Bitcoin below $93,750 if this pattern plays out as expected.

June's low at $98,235 has provided some support to Bitcoin prices. However, a failure to hold this level would open up considerably more room for decline.

Any recovery attempt will face resistance at $116,369. This level represents the starting point of the recent decline and will need to be reclaimed before bulls can feel confident about renewed upside momentum.

Figure 3: Bitcoin (daily) price chart