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5 Things to Watch Next Week: Bitcoin at $5000?, Trump’s Only Option, Overbought Stocks, Catalonia and the UK, The Dollar Rally

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1.            Bitcoin Shooting for Record Highs?

As the bullish trend in cryptocurrencies continues to prevail, the different coins are showing more and more divergent paths, and Bitcoin and Ripple are the undoubted leaders currently. The most valuable coin is only 10% below its all-time high today, and after the shallow and encouraging correction, all looks set for at least a re-test of the previous highs. Bears would like to see a double top forming in BTC, odds favor a continuation of the trend, even amid the hard fork speculation. As for the previous fork, the market share of Bitcoin Cash continues to dwindle, and the original chain is getting stronger by the day. The technical setup is also clearly positive, and the next week could see BTC above the historic $5000 mark.

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Bitcoin, 4-Hour Chart Analysis

2.           Trump Changing the North Korea Narrative?

The North Korean crisis that is still one of the biggest short-term risk factors for the market, even as, hopefully, the involved nations are not willing to go all the way with their threats and a peaceful solution will be reached. The POTUS had a couple of serious-looking comments on North Korea and Iran this week, and he mentioned that there is only one solution left for Kim Jong Un. While we don’t know yet what Trump meant with that, a radical change in the US policy could lead the next risk-off move in the light of the overbought state of the stock market. As safe-haven assets are still being sold, with the Yen and gold being in correction mode, a risky move by the President could lead to a quick surge in volatility and risk-off complex.

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3.           Stock Markets Looking Stretched

The 8-year old bull market in equities is alive and kicking, and this week was nothing short of spectacular for bulls as the most important US and European indices all ended the week near or at their all-time highs. The short-term strength that we noted in August might be ending though, as the rally reached a strenuously overbought state, with the tax-plan induced small cap surge delivering the final blow for bears. While the valuation of the market has long been extraordinary, the “everything bubble” fueled by the main central banks is yet to pop, and the rising trend is still undoubtedly intact. That said, those investors that are overweight equities have a great opportunity to reduce their exposure here.

S&P 500 Futures, 4-Hour Chart

4.           What’s Next for Catalonia and Theresa May?

The political crises in Spain and the UK made headlines this week, with the ensuing weakness in the Great British Pound and Spanish assets showing the extent of the troubles. The Catalonian situation could easily get worse, as the tensions are still high in the region, and there seems to be little chance for a quick solution based on compromises. As for the UK and Prime Minister May, it’s probably early to say that her days are numbered, and we wouldn’t sell the Pound here based on the recent events, but keeping an eye open is certainly justified. Looking at the most affected currency pair, EUR/GBP is nearing the key $0.90 level, and we wouldn’t be surprised by a rally in the Pound against the common currency.

EUR/GBP, 4-Hour Chart Analysis

5.           More Upside for the Dollar?

The Greenback has been showing strength this week, especially against Great British Pound, the Yen, and Aussie, but also against the rest of the major currencies. After the lengthy decline of the Dollar, the hawkish change in the Fed’s rhetoric and the much better than expected PMIs boosted rate hike expectations and in turn the currency. The looming end of Janet Yellen’s term as Fed Chair also put some upward pressure on the USD, and if the positive trend in economic numbers continues, the currency could correct more in the coming weeks. Next week, the meeting minutes of the Fed Wednesday, and the Retail Sales and CPI reports on Friday will be the most-awaited releases, while Mario Draghi’s speech on Thursday could also have a meaningful effect on forex markets.

Key Economic Releases Next Week

Day Country Release Expected Previous
Tuesday AUSTRALIA NAB Business Confidence 5
Tuesday UK Manufacturing Production 0.3% 0.5%
Tuesday UK Goods Trade Balance -11.2 bill -11.6 bill
Tuesday CANADA Building Permits -3.5%
Wednesday US JOLTS job Openings 6.06 mill 6.17 mill
Wednesday US FOMC Meeting Minutes
Thursday CANADA NHPI 0.3% 0.4%
Thursday US PPI Index 0.4% 0.2%
Thursday US Unemployment Claims 255,000 260,000
Thursday EUROZONE Mario Draghi Speaks
Thursday US Crude Oil Invesntories -6.0 mill
Friday AUSTRALIA RBA Stability Report
Friday CHINA Trade Balance 266 bill 287 bill
Friday US Retail Sales 1.5% -0.2%
Friday US CPI 0.6% 0.4%
Friday US UOM Consumer Confidence 95.4 95.1

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Analysis

Technical Analysis: Bitcoin Grinds Higher as Records Tumble in Altcoins

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The historical surge in the segment, which is the second such move this year, continued today, with another round of break-outs in some of the major altcoins and tepid gains for BTC investors. Ethereum, Ripple, Dash, and first and foremost Litecoin was leading the charge, with the recent star LTC topping $300, just after a day of hitting the $200 mark.

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Litecoin defied all odds after reaching extremely overbought readings, and the coin rode the speculative wave, turning exponential, not unlike IOTA and Bitcoin previously. With the coin being stretched in an unprecedented way on all time-frames, investors could even consider selling their core positions at the current levels, as a deep correction is almost granted in the coming period. The first meaningful support level is found at $125, and a re-test of the $100 level is probable during the next major correction.

LTC/USD, 4-Hour Chart Analysis

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Ripple finally ended a long period of relative weakness today, and the only major on a long-term by signal jumped over primary resistance at $0.26 and crossed the $0.30-$0.32 too in the euphoric sentiment. As the coin is not long-term overbought following the 6-month long consolidation, the buy signal in XRP remains intact, with the only major resistance level being found at the all-time high near $0.425.

XRPUSDT/USD, 4-Hour Chart Analysis

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Technical Analysis: Litecoin Continues Surge as Bitcoin Tests Highs

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With the crypto world being focused on the historical futures launch, the major coins all enjoyed buying following a hectic weekend, and a volatile week as a whole. BTC itself got another boost from the widespread publicity and the volatile correction of the recent days ended, with the most valuable coin bouncing back towards its all-time high.

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While the long-term picture remains severely overbought, the short-term picture is not stretched and further gains are possible even amid the elevated correction risk. That said, investors should wait for a more favorable entry point to ad dot their holdings, while traders should control position sizes in the light of the long-term setup. Major support levels are now near $13,000, $11,300, and $10,000, with stronger levels still at $8200 and $7700.

BTC/USD, 4-Hour Chart Analysis

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The major altcoins are all up today, but only Monero and Litecoin are still within short-term uptrends, and the segment as a whole is still dangerously overextended, and a deeper correction is very likely in the coming weeks. LTC continued its recent break-out, getting close to the $200 level, and joining the extremely overbought group regarding the long-term momentum, and triggering a long-term sell signal in our trend model. Key support levels are found $100 at $75 and $64, with a weaker primary level at $125.

LTC/USD, 4-Hour Chart Analysis

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Long-Term Analysis of the Silver Market

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Silver

The silver market has once again caught investors’ interest as the price is nearing areas not seen since late 2008.

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2017 started at a low point for silver, and it seems it will end the year that way as well, meaning investors who bought at the beginning of the year haven’t suffered nor gained much.

This doesn’t mean, however, that the price hasn’t moved during the year. After the low start of the year, silver quickly tacked on about 18% to a top of $17.50 per ounce.

In terms of fundamentals in the silver market, things look a bit complicated for 2018. There are multiple forces pulling in different directions for the price of silver going forward:

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Positives

  • A sharp stock market correction can be expected to occur some time in 2018. Most likely, this will happen sooner rather than later. Stock market crashes always trigger a flight to safety, meaning gold, silver, and quite possibly bitcoin, can benefit.
  • We are seeing signs that inflation may be starting to rise again, although this is not confirmed yet. Rising inflation is always good for precious metals.
  • If the US federal budget deficit widens as a result of the new tax reform, the US dollar may suffer as a consequence. Goldman Sachs put out a note to investors in November 2017 saying that the US debt is “on track” to reach an “unsustainable” level in coming years. Fed Chair Janet Yellen has also said about the US debt that it is “the type of thing that should keep people awake at night.” Rising debt levels creates uncertainty about the economy, which is generally good for gold and silver.

Negatives

  • Central banks around the world seem committed to raise interest rates in 2018. Rising interest rates are bad for precious metals because it would make it more attractive to put money in the bank.
  • The cryptocurrency bull market is on track to continue, diverting attention and capital away from precious metals as a traditional store of value. However, this one is uncertain, as it may also be considered a positive in the way that the rise of cryptocurrencies brings the inflationary and unsustainable nature of fiat currencies into focus.
  • The US dollar may have hit a bottom in 2017 and trade higher compared to other major fiat currencies going into 2018. A stronger dollar is always bad for precious metals, which are priced in dollars.

Silver chart

When looking at the chart, we can see that silver is back down to were it started the year, which coincides with a major support area where it has turned several times in the past few years.

From a technical perspective, silver has been trading in a triangle pattern on the longer-term weekly chart, with the price now trading very near the lower end of the triangle, adding confluence to our bias that silver will trade up from here.

Silver failed to live up to our prediction from early 2017, and is now even trading well below the level from that time.

A low price by any measure combined with two major technical support levels adds confidence to our trade and makes silver a low risk and potentially high reward trade for 2018.

Depending on your own strategy and investment style, you may want to wait for the price to break out from the current triangle pattern it has been trading in for the past year and a half. You would then give up some of the potential return for an even safer trade. After that, major resistance is found around $17.50 and $18, with lots of upside potential if we can finally break through those levels.

Featured image from Pixabay.

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