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5 Things to Watch This Week: North Korea, Bitcoin, Retail Sales, Gold, and the VIX

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1.            Further Escalation between the US and North Korea?

Last week delivered a huge surprise for those who thought that the North Korean situation will stay dormant after the saber-rattling earlier on this year. While the progress that the communist country made in its missile program is, in fact, huge, Donald Trump’s reaction and the “verbal escalation” that followed, took the attention away from the Russia-investigation that entered a new phase just a few days before. While we still think that the military option is a very unlikely, with no real incentive on either side whatsoever, one diplomatic mistake could trigger a real nuclear standoff that would send shockwaves through the financial system. With that in mind, the next steps of the involved powers will be closely watched, and further escalation could push risk assets even lower once again.

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S&P 500, 4-Hour Chart Analysis

2.           Bitcoin above the $4000 Level

The tensions concerning North Korea, the SegWit lock in and the waning fork-fears created a perfect environment for the most valuable cryptocurrency, and BTC took the opportunity. The coin surged as much as 70% since in August and it more than doubled off the late-July correction lows. Bitcoin left the other major coin behind since breaking out to a new all-time high at $3000 only one week ago, as safe haven flows favored the safety of the largest decentralized currency. While the long-term picture is definitely overbought now, the short-term momentum could still carry the currency higher maybe even to the $5000. That said, long-term investors should be selling into the rally, as better buying opportunities will emerge in the coming weeks.

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Bitcoin, Daily Chart Analysis

3.           US Retail Sales and the Dollar

The Consumer Price Index missed the consensus estimate for the fifth month in a row on Friday, and Retail Sales are usually following in suit, so we wouldn’t be surprised by another bearish release that would be an interesting development before the Jackson Hole symposium. The Fed will be under pressure to dial back on the hawkish rhetoric even more, especially if the correction that started this week deepens. The Dollar will be on the center of attention for sure, and given the recent volatility, more fireworks are baked in the cake. The Euro could spike above 1.20 if Retail Sales miss big time, with the FOMC meeting minutes also being released during the week.

4.           Gold or Stocks?

Gold crept higher in its long-standing trading range between $1200 and $1300 in the past weeks, and the Shiny Metal is just shy of the upper boundary after Friday’s crazy session. The long-term picture definitely favors precious metals against the overvalued stock market, and a move above the range could indicate that long-term technicals are finally turning fully bullish. Stocks, in the meantime, rolled over on the war mongering, and given the historically high valuations and the internal weakness of the market, the Fed remains the only real safeguard against a significant correction.

5.           The VIX and the “Short-Volatility” Trade

Some of the most experienced observers have been advocating that the recent low volatility environment is as dangerous as the housing and the tech bubbles have been. Together with the distorted global bond market (Italian junk bonds yield less than US Treasuries…) there is a huge time bomb ticking under the calm surface. A lot of the positions that have been built up in the past few years are directly or indirectly (passive index funds) short-volatility trades which would quickly turn negative even with a (historically) small bear market, turning the sell-off into an outright massacre, as lot of the holders of these “safe” positions would run for the exits at once. While Jim Paulsen himself said the bull market could last forever thanks to the central banks, we believe that valuation will actually matter with time, and this time it’s NOT different.

VIX (Volatility Index), Daily Chart Analysis

Key Economic Releases Next Week

Day Country Release Expected Previous
Monday JAPAN Prelim GDP 0.3%
Monday CHINA Industrial Production 7.6%
Monday CHINA Retail Sales 11.0%
Monday EUROZONE Industrial Production 1.3%
Tuesday AUSTRALIA RBA Meeting Minutes
Tuesday GERMANY Prelim GDP 0.6%
Tuesday SWITZERLAND PPI Index -0.1%
Tuesday UK CPI Index 2.6%
Tuesday US Retail Sales -0.2%
Tuesday US Core Retail Sales -0.2%
Tuesday US Empire Manufacturing Index 9.8
Wednesday UK Hourly Earnings 1.8%
Wednesday UK Unemployment Rate 4.5%
Wednesday UK Claimant Count 6,000
Wednesday EUROZONE Flash GDP 0.7%
Wednesday US Building Permits 1.28 mill
Wednesday US Housing Starts 1.22 mill
Wednesday US Crude Oil Inventories
Wednesday US FOMC Meeting Minutes
Thursday AUSTRALIA Core CPI Index
Thursday AUSTRALIA BOE Statement
Thursday UK Retail Sales
Thursday EUROZONE CPI Index
Thursday EUROZONE ECB Meeting Minutes
Thursday CANADA Manufactruign Sales
Thursday US Unemployment Claims 244,000
Thursday US Philly Fed Index
Thursday US Industrial Production
Friday CANADA CPI Index
Friday CANADA Core Retail Sales
Friday CANADA Retail Sales
Friday US UOM Consumer Sentiment
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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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