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5 Things to Watch Next Week: Saudi Arabia and Iran, Bitcoin in Correction, Stocks Left Behind, Junk Bonds, and the Dollar Rally

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1.            A New King in Saudi Arabia and a New Order in the Middle East?

The restructuring of the Saudi Arabian leadership by crown prince Mohamed bin Salman entered the next stage in the last couple of weeks, and the implications of the “Game of Thrones” of the Middle East won’t stop on the borders of the country or the region for that matter. With the conflict between Iran and the Kingdom escalating in an accelerating pace in Yemen, Qatar, Syria, and now Lebanon, things could get chaotic quickly, especially if the prince fails to cement his power in the coming period.

The superpowers, the US, China, and Russia have vast interests in the region, and with Israel also thrown in the mix (as an ally for the Kingdom, for the time being), it’s not hard to imagine a broader conflict. As the Saudi-US relations are boiling under the quiet surface, with the ongoing shale oil war, the coalition-lines are blurred at best. Oil would be the knee-jerk bet to hedge against an escalation in the region, and sure enough crude prices are on the rise recently, but the questionable fundamentals in the energy segment could steer capital towards the traditional safe-haven of gold and the Yen.

2.           Bitcoin Tanks as Traders Run for the Exits (and into Bitcoin Cash)

Bitcoin spiked as low as $5600 today in early trading as the quick and deep correction that we have been anticipating in the coin arrived. This time around altcoins were mostly left out form the crash, with Bitcoin Cash being in the center of the action. The forked coin briefly surged past Ethereum in market capitalization as the tectonic shift away from its Big Brother fueled an unprecedented speculative rally in BCH, pushing its value above the $30 billion mark.

While the real value of Bitcoin Cash is questionable, the correction in BTC was baked in the cake, and the current trading-theme of BCH could evaporate quickly as selling dries out in Bitcoin. That said, the most valuable coin reached a severely overbought state and more downside is likely for it in the coming week. With that in mind, altcoins still look like a safer bet, even after the bullish move in several of the major coins.

BTC and BCH, 4-Hour Chart Analysis

3.           The Narrowest New All-Time High Ever

Last week marked another record high for the most important US stock indices, but there is a catch; the recent rally was the weakest in history regarding market breadth, with the fewest stocks above the 50-day Moving Averages. While passive investment funds and momentum players amplified the leadership of the most valuable companies, the self-reinforcing cycle is successfully hiding the weakness under-the-hood, at least for now.

That said, the end of this week brought an increase in volatility to Wall Street, and together with other signs, an important top might already be in. The constructive setup that developed in August in equities is a thing of the past, and now the short-term outlook is also negative, together with the hostile investment conditions. While outright shorting is not an easy strategy, further reducing one’s exposure to stocks and gravitating towards tangible assets is advised here.

 Stocks Above the 50-day MA, Daily Chart

4.           High Yield Bonds Smashed Lower but There is Much More to Come

Junk bonds, corporate bonds with the worst outlook, have severely underperformed the US stock indices lately, and that is usually an early sign of risk aversion among smart money investors. This coupled with the internal weakness is a major red flag, and a much more imminent one than the overvaluation that we have been observing for a long time now.

The epicenter of the current “everything bubble” is definitely the global bond market, with absurd valuations across the board. As an example, the European junk bond market now implies a -1.2% chance of default in the segment (yes, negative). Granted, another analyst says that the methodology is wrong, so it is actually 0.5%… Whichever is correct, the monster bubble that the central banks created will collapse, it’s only a question of timing.

HYG (Junk Bond ETF), Daily Chart

5.           Dollar Rally or Just a Bounce?

The Dollar recovered some of its deep losses in recent weeks, but the GOP’s struggle with the tax reform, and especially the likely delay of the corporate tax cut weighed on the currency this week. Despite the two days of losses the uptrend that developed this autumn remains intact, and the continued hawkish outlook regarding the Fed’s monetary policy could fuel another leg higher in the Greenback. Also, the Euro’s strength is at least in part, built on sand, as the structural problems are nowhere near solved in the monetary union, and the Dollar’s investment outlook still looks way more promising.

Dollar Index (DXY), Daily Chart

Key Economic Releases Next Week

Day Country Release Expected Previous
Monday JAPAN BOJ Governor Kuroda Speaks
Tuesday AUSTRALIA NAB Business Confidence 7
Tuesday CHINA Industrial Production 6.3% 6.6%
Tuesday GERMANY Prelim GDP 0.6% 0.6%
Tuesday UK CPI Index 3.1% 3%
Tuesday UK PPI 0.8% 0.4%
Tuesday EUROZONE ECB President Draghi Speaks
Tuesday EUROZONE Flash GDP 0.6% 0.6%
Tuesday GERMANY ZEW Economic Sentiment 19.8 17.6
Tuesday US PPI 0.4% 0.1%
Wednesday JAPAN Prelim GDP 0.4% 0.6%
Wednesday AUSTRALIA Wage Price Index 0.7% 0.5%
Wednesday UK Average Earnings 2.1% 2.2%
Wednesday UK Unemployment Rate 4.3% 4.3%
Wednesday UK Claimant Count 2,400 1,700
Wednesday US CPI Index 0.1% 0.5%
Wednesday US Core Retail Sales 0.2% 1.0%
Wednesday US Retail Sales 0.00% 1.6%
Wednesday US Crude Oil Inventories 2.2 mill
Thursday AUSTRALIA Unemployment Rate 5.5% 5.5%
Thursday AUSTRALIA Employment Change 18,900 19,800
Thursday UK Retail Sales 0.2% -0.8%
Thursday CANADA Manufacturing Sales -0.4% 1.6%
Thursday US Unemployment Claims 236,000 239,000
Thursday US Philly Fed Index 24.3 27.9
Thursday US Capacity Utilization 76.3% 76%
Thursday US Industrial Production 0.5% 0.3%
Friday EUROZONE ECB President Draghi Speaks
Friday CANADA CPI Index 0.1% 0.2%
Friday US Building Permits 1.25 mill 1.23 mill
Friday US Housing Starts 1.19 mill 1.13 mill

Featured image from Shutterstock

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 380 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Analysis

Crypto Update: Altcoin Season Is On The Horizon

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Altcoin season is a term used in social media and other online communities to describe the part of the market cycle where altcoins, such as Ethereum or Ripple, experience a meteoric rise in value against Bitcoin and the US Dollar. During this period, many altcoins enter a parabolic state that enables them to grow anywhere from 200% to 3000%. This was the case in the last alt season, which was from December 2017 to January 2018.

While this highly anticipated season can bring a lot of profits, it can also end in disaster to those who fail to correctly time the market. During the last season, many were slaughtered as they entered only after news of market explosions. Little did they know that they were already buying the top. Therefore, it is crucial to enter positions just before the season starts. The price movements in the last two months have given us reasons to believe that altcoins are preparing for a bull run.

In this article, we reveal why we believe that the altcoin season is on the horizon.

Altcoin Market Cap Appears to be Bottoming Out

The altcoin market cap is the market capitalization of all cryptocurrencies minus Bitcoin’s market capitalization. We use this measure to track the amount of capital going in and out of all altcoins. The largest altcoin market cap ever recorded was at $554.916 billion in January 2018. Since then, the numbers have nosedived and even touched $78 billion in September. That’s an 85% devaluation.

The good news is $78 billion may have been the bottom as the entire altcoin market is working hard to generate a bullish higher low setup.

Altcoin market cap daily chart

A quick look at the daily chart reveals that the altcoin market chart is creating an inverse head and shoulders pattern. This structure is one of the most reliable patterns to indicate that the bottom is in. The higher low (right shoulder) tells us that participants are willing to buy at a higher price.

Bitcoin Dominance Looks Toppish

The Bitcoin dominance chart monitors the percentage of the cryptocurrency capital that can be attributed to Bitcoin. Bitcoin dominance has been on the up and up ever since it bottomed out at 32% on January 12, 2018. It climbed as high as 58% on September 9, but it has been sputtering since. This is a very good sign for altcoins.

A look at the chart reveals that Bitcoin dominance is toppish. It is moving near the apex of a rising wedge. More importantly, it appears to have created a bearish lower high setup. As we always say, the lower high kills bullish momentum.

What does it mean for altcoins and the alt season?

First, this chart doesn’t necessarily show that Bitcoin’s capital is decreasing. On the contrary, Bitcoin’s market cap is in the process of creating a higher low, which means money is flowing into the market. So if Bitcoin’s capitalization is not decreasing, then it would mean that new capital is being injected into altcoins. To be more accurate, altcoins appear to be growing at a faster pace than Bitcoin at the moment.

This would explain the bullish higher low setup of the altcoin market cap. Significantly more money is coming than leaving. Investments are flooding in that it threatens to send Bitcoin dominance into a downtrend.

Bottom Closely Resembles 2014 Bear Market

Technical analysis is the study of historical price movement. This is one of the reasons why we keep going back to the 2014 bear market. We study it to see if participants are behaving the way they did back then. What we discovered was surprising.

2014 altcoin bear market

During the 2014 bear market, altcoin market capitalization suffered a 86% devaluation in 38 weeks before it established a bottom. In today’s bear market, the altcoin market cap plummeted 85% in 36 weeks. From the looks of it, the bottom was already established on the 36th weekly bar on September 10, 2018.

2018 altcoin bear market

These are astonishing resemblances in terms of percentage loss and bear market length. If the resemblance continues, as clues suggest, then the altcoin season may be around the corner.

Bottom Line

The altcoin season can be profitable to people who enter the markets right before the explosion. In our analysis, we showed the stabilizing altcoin market capitalization, weakening of Bitcoin dominance, and mirroring to the 2014 bear market. All these clues tell us that alt season is on the horizon.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.7 stars on average, based on 253 rated postsKiril is a financial professional with 4+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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Altcoins

Bitcoin Cash Price Analysis: BCH/USD Bulls Have the Potential to Capitalize, Following a Bullish Technical Set Up

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  • BCH/USD broke out and retested a long-running descending trend line, but has failed to capitalize on this further.
  • George Hotz, also known as Geohot, says “Bitcoin Cash is the real Bitcoin.”
  • CoinText.io expands its Bitcoin Cash payment SMS service to Brazil and further European countries. 

“Bitcoin Cash is the Real Bitcoin”

George Hotz, also known as Geohot, an American entrepreneur and hacker, was recently commenting on Bitcoin Cash. Following the BCH Devcon in San Francisco he attended, Geohot demonstrated how to generate a BCH private key from scratch using python coding.

During his python video, George spoke highly of Bitcoin Cash. He said, “I’m using Bitcoin Cash because it’s the real bitcoin.” His reasoning for the preference of BCH over BTC was due to it having significantly lower transaction fees. Stating, “Transaction fees are super low on bitcoin cash.”

Bitcoin Cash Being Used in Brazil with CoinText.io

SMS cryptocurrency payment service, CoinText, has launched their services in Brazil and three other European countries – Poland, Romania and Croatia. CoinText doesn’t require apps, logins or Internet, and users can send Bitcoin Cash via SMS. A new wallet is automatically created when people have received Bitcoin Cash via SMS.

Specifically commenting on the Brazilian expansion, CoinText founder and CTO said, “Brazilians have been suffering from corruption and bad monetary policy,” says CoinText founder and CTO Vin Armani. “Cryptocurrency offers a way for them to peacefully opt out of a corrupt system.”

A move in which is further helping the adoption of Bitcoin Cash, via the CoinText service, he further noted, “Adding Poland, Croatia and Romania brings us closer to connecting the entire continent of Europe,” Armani added. “CoinText’s end-of-year goal is to enable all 740 million European residents to text money to each other’s phones for pennies.”

Technical Review – Daily Chart

BCH/USD daily chart

BCH/USD price action of late has been very much mundane following a promising breakout from a long-running descending trend line. It had been contained below and rejected on several occasions, from the back end of July. Bulls managed to pull off a decent breakout to the upside, which took place between 26-27th September.

After observing the break above, then pullback for a retest of the breached trend line, it looked very promising. This as such played out to the textbook, however bulls failed to capitalize and drive further north. Instead, the price remained within a consolidation nature, a lack of commitment in either direction. Perhaps the bulls are sitting on the launchpad, ready to send this into orbit, time will tell here.

Looking at technical areas of interest, to the upside, resistance has capped upside well into $500 territory. Tracking from $455-80, which has been evident the past few sessions. A firm push higher, will allow $550 region to come back into play. In terms of buyers, they can be found from the current price, all the way down to $400 the round figure.

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.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 33 rated postsKen has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.




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Analysis

Crypto Update: Coins Turn Lower After Choppy Weekend

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The major cryptocurrencies are slightly lower today in early trading, as Sunday’s modest rally faded away without major technical progress. Most of the coins are stuck in narrow trading ranges, and last week’s spike well above the current price levels, as buyers failed to take control of the market.

That said, we haven’t seen strong negative momentum either, and although the bearish long-term setups remain intact, there is no immediate danger of new bear market lows in the segment.

Patience is still the name of the game for crypto investors, since there is no evidence of a broader trend change that would justify a more constructive investment position. Our trend model is on sell signals across the board on both time frames, and the bearish pressures are still apparent on the charts, even considering the lengthy consolidation period. Given the negative long-term trends, odds still favor a test of the lows in most case, particularly in the light of the lack of bullish leadership.

IOTA/USD, 4-Hour Chart Analysis

While most of the majors are still above the lows hit just before the Tether-turmoil, there are several relatively weak coins that could lead the market lower in the coming weeks. Especially Ethereum, Liteocin, Dash, and EOS point a negative picture of the market, while Ripple and Bitcoin are still the most encouraging form a bullish standpoint, even as they also failed to signs of bullish momentum.


BTC/USD, 4-Hour Chart Analysis

Bitcoin is back near the $6400 level today, after drifting towards the $6500 resistance during yesterday’s rally,  but the coin is still well clear of the $6275 support level, trading clearly within last Monday’s range. Our trend model continues to be on a short-term sell signal, while the long-term picture is still neutral for the largest digital currency.

Traders and investors still shouldn’t enter positions here with further resistance levels ahead near $6750 and $7000 and with support levels below $6275 found near $6000, $5850 and between $5000 and $5100.

Altcoins Slightly Lower as Stellar Fails to Break Out

XRP/USD, 4-Hour Chart Analysis

Ripple and Stellar have been showing some positive signs last week, but they both failed to make significant technical progress, confirming the segment-wide selling pressure. Ripple is threatening to move below the $0.42-$0.46 level, despite the rally above its triangle consolidation pattern, and a break below $0.42 would likely trigger a test of the $0.355 support.

For now, the short-term sell signal remains in place due to the lack of follow-through, and traders should be cautious with new positions. Strong resistance is still ahead at $0.51, $0.54, $0.57, while further, weak support is found near $0.375.

Stellar/USD, 4-Hour Chart Analysis

Stellar is trading very close to the key long-term support zone near $0.24 that has been dominating trading for several weeks, and despite the rally attempts, the coin is still not out of its bear market. That said, should a broader trend change occur, Stellar would likely be among the leaders of renewed advance, but for now, traders and investors should still stay away from the coin.

The declining long-term trend is intact, with strong resistance levels ahead near $0.265 and $0.2835, while support levels are found near $0.235, $0.21, and $0.1935.

ETH/USD, 4-Hour Chart Analysis

Ethereum is still stuck in a very narrow range after the weekend, with the $200 support/resistance level still being in the center of attention. The bearish broader setup is unchanged in ETH’s market, with the coin still being relatively weak among the majors.

Traders and investors shouldn’t open new positions her, with further support found near $180, $170, and $160, and with strong resistance zones ahead near $235 and $260.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 380 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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