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5 Things to Watch Next Week: Merkel’s Fourth Term, A New Crypto Rally?, Bullish Equities, US Tax Reform, Super Friday

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1.            The Aftermath of the German Election

Angela Merkel became chancellor for the first time in a row, still, she cannot be delighted with the results. The coalition behind her got much weaker, the anti-immigration AFD-party surged to the third place of the vote. With those in mind, Merkel might have a much less comfortable period ahead of her, and the power struggle could weaken the position of EU’s central forces. The Euro could lose some steam next week, as the momentum of the common currency’s advance has already been waning lately, and the DAX could also lose some of its recent relative strength.

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DAX, 4-Hour Chart Analysis

2.           Cryptocurrencies Gathering Strength?

The segment had a choppy and slightly frustrating week for traders after the previous crash and subsequent surge. Bitcoin, Ethereum, and the other majors continued to trade with elevated correlation as the correction remained dominant. Friday brought a meaningful dip in the coins, but the most important support levels held up during the weekend, and that could point to a bottoming process in the sector. With the long-term picture being much more constructive following the deep correction, traders face much lower risks when entering new positions. That said, the next week could still hold some surprises, and a test of the prior lows is not out of the question, so investors should be ready for another challenging period.

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Ethereum showing relative strength this weekend, 4-Hour Chart Analysis

3.           What Could Stop the Stock Rally?

Although the mainstream financial outlets stress that low interest rates justify the current stock valuations, the growth prospects in the US don’t agree. Truth is that, with the exception of the biggest bubbles, valuations have never been so distorted in equities, and expectations regarding long-term returns are very far away from reality. That said the party is still on; the major indices have been showing strength recently and all looks set for another round higher in one of the longest bull markets in history. Until technicals don’t confirm a trend change, traders should wave higher, but investors should remain conscious about the risks and diversify accordingly.

MSCI World ETF, Daily Chart

4.           Trump’s Tax Plan

The Trump-Rally in stocks was in a large part thanks to the expectations of a major tax relief for the US corporate sector. As the POTUS faced strong headwinds even in his own party, the reform process has been delayed, adding to the downward pressure on the Dollar and taming the rally in stocks. The expected tax changes have been partially leaked, and the proposed 20% corporate tax rate is in line with the prior pledges, while the plan would also be favorable for members of the upper income brackets. Donald Trump is expected to give a speech on the matter on Wednesday, and we expect at least a short-term boost to equities and the Dollar from the announcement.

5.           Super Friday in Economic Releases

While the week will already be filled with important numbers coming out (US GDP, Durable Goods, Consumer Confidence, German CPI…), Friday will be the busiest day for traders. From Japan (CPI) to Canada (GDP), there will be crucial reports published all over the world, and especially forex markets could turn volatile before the weekend. The strong trends in the Yen, the Canadian Dollar, and the Great British Pound will be tested, while all eyes will still be on the Dollar following the hawkish Fed decision. The North Korean situation could also take another turn, and safe-haven assets might have they day again after the recent correction.

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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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