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Analysis

5 Things to Watch Next Week: Ethereum, UK Election, Oil, Summer Seasonality, Gold

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1.            Strong Fundamentals Lift Cryptocurrencies as Capital Pours in the Market

Several favorable fundamental developments helped the crypto-market in its recovery after the steep correction of the previous week. New leaders pushed the market value back to $90 billion, after a $30 billion drop, as Ethereum, Dash, and Ethereum Classic showed relative strength, while Bitcoin, Litecoin, and Ripple are still well off their respective highs. The biggest Chinese cryptocurrency exchanges reopened withdrawals, one of the biggest Japanese forex brokerages started offering Bitcoin trading, while the Russian leadership is considering a “national” cryptocurrency.

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2.           Lots at stake at the UK Election Under the Shadow of Terror

Yesterday’s tragic terror attack in London could have a major effect on the British snap elections, especially after the narrowing of the difference between the Conservative Party and the Labour Party. The campaign has been officially suspended following the attacks, while both parties have accused the other of “politicizing” the attacks. PM Theresa May and the Conservative Party are more likely to benefit from the current sentiment, and the reaction by the Pound could actually be surprisingly positive thanks to that.

GBP/USD, 4-Hour Chart Analysis

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3.           The OPEC Under Pressure: Oil Supply Creeps Higher

The crucial commodity remained in a declining trend throughout the week, falling as low as $47 per barrel from the pre-OPEC-meeting highs near $52. The relentlessly rising US production numbers keep a lid on the price of crude oil, and the trend is likely to continue in the coming months, as break-even levels for shale-oil continue to decline. As the effectiveness of the cartel’s production cut is questionable, a sustained rally in oil is unlikely.

4.           Will Negative Summer Seasonality Kick-In for Stocks?

“Sell in May and go away!” This is one of the oldest “common knowledge” trading strategy regarding US stocks, and a little bit surprisingly, it has a lot of merit to it. As you can see in the chart above, June is one of the worst months of the year and, on average, the S&P 500 hasn’t gone anywhere in the past 30 years from May to December. That said, outlier years are not uncommon, so the summer could bring more gains, but, given the internal weakness in the markets, investors should be cautious, especially after the huge “Trump-Rally” in the US since the election in November.

5.           Will Gold Continue above $1300?

Gold broke out from the trading range between $1260 and $1275 following the lackluster US Employment Report, and continued its short-term uptrend, on its way to the $1300 level. The London attacks, combined with the disappointing economic numbers, could fuel the next leg higher in the precious metal, with the next Federal Reserve meeting coming up in 10 days. Interest rate expectations have dipped before the central bank’s decision, and that is usually bullish for gold. The ECB will announce its rate decision on Thursday, and that could also move the price of the metal.

Gold, 4-Hour Chart Analysis

Key Economic Releases Next Week

Day Country Release Expected Previous
Monday UK Services PMI 55.1 55.8
Monday US ISM Non-Manufacturing PMI 57.3 57.5
Monday US Factory Orders -0.20% 0.20%
Tuesday AUSTRALIA RBA Rate Decision 1.50% 1.50%
Tuesday AUSTRALIA RBA Statement
Tuesday CANADA Ivey PMI 62 62.4
Wednesday AUSTRALIA GDP Growth 0.30% 1.10%
Wednesday UK Halifax HPI -0.20% -0.10%
Wednesday CANADA Building Permits -5.80%
Wednesday US Crude Oil Inventories -6.4 mill
Thursday JAPAN Final GDP Growth 0.60% 0.50%
Thursday AUSTRALIA Trade Balance 1.99 bill 3.11 bill
Thursday CHINA Trade Balance 336 bill 262 bill
Thursday EUROZONE ECB Interest Rate Decision 0 0
Thursday EUROZONE ECB Monetary Statement
Thursday CANADA NHPI Index 0.30% 0.20%
Thursday US Initial Jobless Claims 241,000 248,000
Friday CHINA CPI Index 1.50% 1.20%
Friday CHINA PPI Index 5.70% 6.40%
Friday UK Manufacturing Production 0.80% -0.60%
Friday UK Goods Trade Balance -12.0 bill -13.4 bill
Friday CANADA Unemployment Rate 6.6% 6.5%
Friday CANADA Employment Change 11,500 3,200

 

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Analysis

Bitcoin’s Record-Breaking Rally Continues as Prices Cross $8,100

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Bitcoin surged to new highs on Sunday, as the world’s largest crypto by market cap continued to generate bids following the cancellation of Segwit2x.

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BTC/USD Price Levels

The value of a single bitcoin reached a daily high of $8,110.59, its best level on record. At press time, BTC/USD was valued at around $8,002 for a gain of 4%.

With the gain, bitcoin’s market cap now exceeds $133 billion. That’s roughly $100 billion greater than Ethereum, the market’s second most valuable cryptocurrency.

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Bitcoin has added more than $1,100 over the past five sessions. It was down around $5,600 just one week ago.

Bitcoin Cash (BCH), a digital currency alternative that broke away from the original blockchain Aug. 1, was down 5.1% at $1,185. BTC and BCH locked horns earlier this month after the Segwit2x hard fork was abandoned.

$10,000 and Beyond?

Institutional clearing platform LedgerX has initiated its first long-term bitcoin futures option, which is set to expire Dec. 28, 2018. In setting up the option, LedgerX is assuming a price of $10,000 at the time of expiration. That’s a 25% premium on current levels.

Investors who buy the option are essentially saying they believe prices will exceed $10,000 by the time of expiration.

Bitcoin is being helped by growing institutional demand for the digital currency, as hedge funds, day traders and other mainstream investment outfits look to access this burgeoning asset class. CBOE and CME Group have each announced plans to integrate bitcoin into more conventional investment vehicles in the coming months.

The rush of institutional money into bitcoin is a sure sign that the digital asset class is becoming too big to ignore. The value of all cryptocurrencies in circulation has already exceeded $230 billion, with more than a dozen coins valued at $1 billion or more. Nine others have a market cap of $500 million or greater.

Coinbase Responds

The rise of institutional capital has also compelled Coinbase to introduce a custodial service targeted at account holders with more than $10 million in assets. This service targets hedge funds and other institutions that have remained largely on the sidelines of the crypto revolution.

In a recent blog post, Coinbase CEO Brian Armstrong announced that the new service will launch sometime next year.

“When we speak with these institutions, they tell us that the number one thing preventing them from getting started is the existence of a digital asset custodian that they can trust to store client funds securely,” Armstrong wrote.

In addition to maintaining the minimum $10 million asset requirement, institutions must pay a $100,000 setup fee to gain access tot he Custodial program. In response, institutional investors will receive assurance that their assets are secure.

The Coinbase Custody website lists broad support for bitcoin, Ethereum (ETH) and Litecoin (LTC), as well as ERC20 tokens. The ERC20 protocol has emerged as the favorite for startups launching initial coin offerings (ICOs), a controversial crowdfunding model that has already overtaken early stage venture capital.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock. 

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Cryptocurrencies

Is Ethereum Ready to Play Catch Up With Bitcoin?

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In mid-June of this year, the difference between the market capitalization of bitcoin and Ethereum had narrowed down to less than $8 billion. This had many market participants excited. They expected Ethereum to dethrone bitcoin as the leader, a move popularly termed as flippening.

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Key observations

  1. Ethereum has hugely underperformed bitcoin
  2. The chart pattern suggests that Ethereum is likely to play catch up in the next few months
  3. Stay on the long side of Ethereum to benefit from the bullish setup

However, fast forward five months and the difference in the market capitalization of the top two cryptocurrencies has increased to about $96 billion. This shows that while bitcoin has raced ahead in the past few months, Ethereum has hugely lagged behind.

However, is the underperformance about to end?

The chart pattern shows that Ethereum is likely to embark on a rally of its own that can carry it to $645 to $670 levels in the next few months. Let’s see how we arrived at these levels.

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Ethereum opened trading at $8.16 on January 1, 2017. It started its rally in March and by June 12, it reached a high of $420, an astronomical rally of about 5047%. Thereafter, it entered a period of consolidation, digesting the gains.

On the charts, Ethereum has formed a large symmetrical triangle, which usually acts as a continuation pattern. The breakout is generally in the direction of the long-term trend, or the trend that was prevailing before the pattern formed. In this case, the sharp move from January to June confirms that the cryptocurrency was in an uptrend before forming the triangle.

However, this is not a fool proof trade because sometimes the symmetrical triangle acts as a reversal pattern. Therefore, the best way to play this trade is to wait for a breakout of the triangle before initiating any trade.

Where can we take an entry?

Currently, the resistance line of the triangle is at about $378 levels, a level close to today’s intraday highs. The bears are likely to strongly defend this level. However, if the bulls breakout of $378 and manage to close above the resistance line, the trade on the long side will set up.

Different traders use different methods to confirm whether the breakout is valid or not. Some wait until price moves 3% above the breakout level, others wait for three consecutive closes above the resistance level.

However, we have observed that the best breakouts never look back, hence, waiting for three days may lead to a missed opportunity. Therefore, we can wait for a closing above the resistance line of the triangle and initiate the long positions on the following day.

The breakout can face resistance at $400 and $420. However, we expect the virtual currency to scale both these resistances and rally towards its pattern target zone of $645 to $670.

Notwithstanding, even the most reliable patterns can fail. Therefore, our stop loss will be kept at $340. We don’t want to hang on to the trade if it falls back into the triangle. We shall raise our stops to breakeven as soon as Ethereum breaks out to new lifetime highs. From thereon, we shall trail the stops higher to protect our paper profits.

Note

The chart pattern suggests a resumption of the long-term uptrend in Ethereum. However, this will not get confirmed until the cryptocurrency breaks out and sustains above $380. Therefore, please initiate positions only on a breakout and close above the triangle. Entering presumptive trades may result in losses.

Featured image courtesy of Shutterstock. 

 

 

 

 

 

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Analysis

Long-Term Cryptocurrency Analysis: Bitcoin Flirts with $8000 as Altcoin Bull Persists

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Bitcoin’s swift recovery was the main topic of the week, as the most valuable coin not just regained its steep losses, but hit a marginal new high towards the end of the period. The entire segment is experiencing capital inflows as the total value of the coins climbed above $230 billion for the first time ever after finally leaving the vicinity of the $200 billion mark.

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BTC breached the $8000 level before turning slightly lower on Friday, but despite the severely overbought daily chart, it is still trading near its all-time highs. As the long-term picture still suggests a deeper correction, investors should wait with opening new positions and traders should also control position sizes here. Key support levels are found at $7700, $7000, and $6700, while the recent key break-out level at $5000 still hasn’t been re-tested.

BTC/USD, Daily Chart Analysis

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Dash is still the most bullish altcoin from a technical standpoint, despite this week’s short-term correction, as the coin is trading above its prior all-time high, and this weekend, it looks ready to test the break-out high near $500. Support levels are still found at $400, $360, and $330, and as the long-term picture is approaching overbought territory, investors should only hold on to their positions here.

DASH/USD, Daily Chart Analysis

The other major altcoins are also mostly in bullish setups, with some of them already in the latter stages of this cycle, like Monero and IOTA, but elsewhere in the segment, there are still opportunities for both traders and investors. Let’s see the detailed long-term view.

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