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Analysis

5 Things to Watch Next Week: The Fed, Crypto-Chaos, All-Time Highs in Stocks, FX-Volatility, Gold at $1300

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1.            What’s Next for the Fed?

All eyes will be on Wednesday’s FOMC meeting, as the central bank is expected to provide the details of its tapering plans. While the bond market predicts no rate hike from the Fed next week, the future of the bank’s balance sheet is at least that important for risk assets and the Dollar.

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The Bank of Canada raised its benchmark rate two weeks ago while the Bank of England also took a surprisingly hawkish turn last week, so the global environment definitely favors tightening. Also, the major US stock indices are at or near all-time highs so, despite the mixed economic numbers, the Fed might be comfortable with even a bolder quantitative tightening schedule that would surely cause some turmoil in the main asset classes.

TLT (Long-Term US Bond ETF), Daily Chart Analysis

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2.           Bitcoin After a Bubble or Still on the Way Up?

The crypto segment has been shaken by this week’s crash, as the Chinese crackdown on ICOs and crypto-exchanges spread uncertainty in the sector. The previously soaring market was ripe for a correction, but the speed and extent of the move caught a lot of investors off guard, amid the growing chatter on a bubble in the coins. While the stellar gains in the segment do in fact resemble a speculative bubble, and Bitcoin already experienced several boom-bust cycles, whether or not we are after a multi-year top is yet to be seen. For now, the long-term trends in most of the majors are intact and the continuation of the boom is more likely. The next few weeks will be crucial in deciding where we are in the current cycle, as bulls and bears will battle for control amid the accelerated blockchain adoption.

Bitcoin, Daily Chart Analysis

3.           Equities Continue to Defy Valuations

The North Korean escalation, tightening central banks, another miss in US Retail Sales, and so on… A weak stock market would have definitely tumbled in recent weeks, but conversely US equities have been edging higher towards their all-time highs. The Dow closed on a new ATH on Friday and the S&P 500 finished right at the 2500 level, with only the Nasdaq lagging slightly after the mixed reception of Apple’s new IPhones. The Fed might be able to stir things up next week, but despite the extremely high level of the most valuable valuation measures (CAPE, P/S…) and the weak market internals, the price action makes a break-out to new highs very likely here. Calling an exact top in equities is almost impossible but we still think that for anything more than short-term trades, investors are too late to the stock-party now.

4.           Strong Trends in the Major Currencies

FX volatility, which incredibly enough took over stock volatility lately, exploded in some of the major pairs thanks mainly to diverging monetary expectations. The Pound surged by several percents against its most important peers, while the Canadian Dollar continues to be among the strongest majors. That said, the focus is still on the Dollar that lost significant ground compared to the Euro lately, but it showed some strength in recent weeks. With the looming Fed meeting, we expect a two-faced week, as the run-up towards the rate decision is usually choppy while the aftermath tends to be violent. The Bank of Japan’s monetary meeting could also add volatility to the mix, as the Yen also experienced strong moves in both directions in recent weeks.

5.           How low will the Gold-Correction Reach?

As the tensions regarding North Korea eased somewhat (although the crisis is far from being over mind you), despite another missile launch by the country, the primary safe-haven asset entered a slightly overdue correction. The recent key break-out in the precious metal carried it to overbought territory, and although the long-term is clearly bullish now, a move to test the $1300 level is likely, especially if the Fed joins the hawkish central bank trend. But as stocks are near all-time highs, and stock volatility is near record lows, the creeping strength in gold is something to note and increasing one’s holding still seems the way to go.

Gold Futures, Daily Chart Analysis

Key Economic Releases This Week

Day Country Release Expected Previous
Monday EUROZONE Final CPI 1.5% 1.5%
Tuesday AUSTRALIA Monetary Meeting Minutes
Tuesday GERMANY ZEW Economic Sentiment 12.3 10.0
Tuesday CANADA Manufacturing Sales -1.4% -1.8%
Tuesday US Retail Sales 0.2% 0.3%
Tuesday US Existing Home Sales 5.46 mill 5.44 mill
Wednesday UK Crude Oil Inventories 5.9 mill
Wednesday US FOMC Rate 1.25% 1.25%
Wednesday US FOMC Statement
Wednesday US FOMC Press Conference
Thursday JAPAN BOJ Rate Decision -0.10% -0.10%
Thursday JAPAN Monetary Statement
Thursday CANADA Wholesale Sales -0.9% -0.5%
Thursday US Unemployment Claims 300,000 284,000
Thursday AUSTRALIA Trade Balance 0.95 bill 0.86 bill
Thursday UK Halifax HPI 0.2% 0.4%
Thursday EUROZONE ECB Rate Decision 0.00% 0.00%
Thursday CANADA Building Permits 2.2% 2.5%
Thursday EUROZONE ECB Press Conference
Thursday US Unemployment Claims 300,000 284,000
Thursday US Philly Fed Index 17.2 18.9
Friday GERMANY Manufacturing PMI 59.0 59.3
Friday GERMANY Services PMI 53.8 53.5
Friday EUROZONE Manufacturing PMI 57.2 57.4
Friday EUROZONE Services PMI 54.8 54.7
Friday CANADA CPI Index 0.2% 0.0%
Friday CANADA Retail Sales 0.4% 0.7%

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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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