Santoli’s Wednesday market notes: Speculative fever on bitcoin breaks, and the S&P 500 tests a recent low

Published Wed, May 19 202112:59 PM EDT

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. The crypto crunch, sell-the-news on great earnings, tapping-of-brakes in homebuilding and tax-day cash-raising this week have all amounted to a pretty routine-looking test of last week's broad-market low – for now. Here's the S & P 500 over the past 10 days: this morning's low right at the weekly bottom from seven days ago. Yes, it would seem a bit too cute to revisit the low to the dollar and then resume the rally. Can't say this will happen. Plenty of folks looking for a real flush under 4,000. But can't rule something like this out either; sometimes the market is exactly this cute, in the very short term. In the morning drop, the VIX was up but stopped way short of last week's high, even with the S & P back at the same level. We saw some of the recent downside leaders – semis, Nasdaq 100 names – start drawing buyers. The Chinese government's threats regarding uses of bitcoin and other cryptos are surely a proximate cause of the flight from risk today. But the coin was already looking toppy. It was the last node of speculative fever that hadn't broken since February (solar, EVs, cloud, ARK, IPOs, SPACs all did). So this is properly seen as a nasty purge in a market grown unstable by a parabolic hot-money surge. Broader macro sentiment is now focused on the offsets and complications of a booming rebound: cost pressures, supply constraints, labor shortages, a possible near-term crescendo in house-buying and building urgency, etc. Doesn't much change the overall set-up – earnings still going the right direction, credit markets are fairly steady. And all the talk of these issues has helpfully taken many prices down from extremes and helped rebuild what had become a stunted wall of worry. Unclear how much the market can handle what seems to be a needed pullback in the cyclical favorites, which have all made a couple mini-peaks on their charts. Still no emergency but leadership looks a bit tired. Can growth hold things together in a sharper correction for cyclicals? Market breadth started out as a comprehensive rout, has become a bit less negative, especially on Nasdaq. NYSE up:down volume split still 18:82, but Nasdaq has some traction, 1:2 ratio. Don't think the Fed feeds too directly into today's sloppiness, just a general shadow of apprehension around whether/when it will have to engage in some taper talk. Not today's business, markets always tend to over-anticipate these policy turns. We'll see what the minutes say at 2 p.m.

Traders on the floor of the New York Stock Exchange.

Source: NYSE

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics.

The crypto crunch, sell-the-news on great earnings, tapping-of-brakes in homebuilding and tax-day cash-raising this week have all amounted to a pretty routine-looking test of last week's broad-market low – for now.