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Market Overview

Bitcoin is Back

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There is a world of difference between speculation and implementation but they are connected.

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Even though price movements can be incredibly distracting they do serve to drive excitement in the market and attract new people to this exciting field, which does lead directly to more implementation.

For example, according to a recent report, there are now twice as many registered cryptotraders in Brazil than there are stock traders. In Russia, thanks to 185,000 news articles that were written about Bitcoin, more than half of the population now feels confident that they have a good grasp of what cryptocurrencies are.

Blockchain operates on the power of the network. Similar to the way we see the “wisdom of the crowd” in eToro, where each client that comes in whether they are a beginner or expert trader, strengthens the entire system.

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Though the bitcoin network has not grown nearly as fast as her price, there has been an incredible rise in the number of full nodes, people who have downloaded the entire blockchain ledger in order to help verify transactions.

I’m proud to report that after 46 days of being flooded, the bitcoin network is showing signs of recovery and the backlog of transactions is finally clearing.

This recent pullback in the price has been a blessing in disguise.

@MatiGreenspan
eToro, Senior Market Analyst

Today’s Highlights

Government Temp

BoJ Announcement

Getting Technical with Bitcoin

Please note: All data, figures & graphs are valid as of January 23rd. All trading carries risk. Only risk capital you’re prepared to lose.

Traditional Markets

The good news is that the US government managed to come together long enough to get money flowing through its branches. The not so good news is that this most recent deal will only fund the government for another 16 days.

The hope is that in that time frame they’ll be able to work out a more long-term solution but most political analysts are saying that this is very unlikely and we can expect another showdown in two weeks time.

The shutdown has not affected the stock market whatsoever, but it seems the temporary spending bill has. Markets on Wall Street saw a strong relief rally.

Asian markets this morning are have continued the momentum with both the Nikkei 225 and the China 50 up about 1.25%.

The story here is one of economic growth despite political deadlock. Earnings are good, corporations are doing well, so stocks go up. The head of the IMF, Christine Lagarde kicked off the Davos convention with an inspirational speech to address sum all this up saying that “the time fix the roof is when it’s sunny outside.”

Makes sense to me.

Japan Remains Cautious

The Bank of Japan’s event this morning was fairly uneventful. They only made minor changes to their outlook on the economy. Though these changes could be seen as laying the groundwork to exit their ultra-aggressive stimulus program it’s clear that they don’t want to spook the markets by pulling out too abruptly.

My guess is that the BoJ governor Kuroda is looking at this graph…

Kuroda wants this chart to up, but ending stimulous would have the effect of sending it down. If he manages to build in some strong support at 110 Yens to the Dollar (blue line) or even break the dotted yellow line to the upside, they might be able to create some directional momentum that would make things easier to implement the changes they want.

Bitcoin Decongestion

As we alluded in the opening letter above, the recent price action and “sell-off” in cryptocurrencies has been really good for bitcoin.

Even though mass adoption is a dream come true, the network does need time to scale. While things are surging and the number of transactions skyrocket, it’s difficult to do that.

Thanks to the declining prices, the transaction rate has come down nicely. At the peak in December, we were seeing more than 4.7 transactions per second. That number is now down to a more sustainable 3.24.

This has given time for the backlog to clear. Since December 8th, there have been more than 100,000 transactions at any point waiting to be added to the blockchain.

This morning, that number was seen as low 55,000. A much more normal number.

In the meantime, some solutions are starting to be implemented to improve the overall capacity of the network. The two main solutions at the moment are SegWit and Lightening.

SegWit has been in place since August but users have been slow to adopt it. The lightening network, on the other hand, is a lot newer and after months of testing, the first few transactions are just happening now.

For the first time in months, we’re seeing real signs that bitcoin’s odds of remaining the world’s number one digital currency are increasing and with it the awesome possibility of a truly global and borderless monetary system have reemerged.

Bitcoin Price Analysis

Right, but what about the sell-off???

So, we can never really know what’s going to happen in the future. However, we do know that what’s happening at the moment is purely technical.

There has been no major breaking news that would point to a systematic breakdown of digital currencies or a global crackdown on regulation. Therefore, we must conclude that this price action is due to the tremendous rise in price and we’re just seeing a normal pullback.

As I’m writing the level of $10,000 is being heavily tested but it wouldn’t surprise me to see a gentle break below this round figure.

As I’ve mentioned before and was well documented, the next main level of support for bitcoin is at or around $8,000 per coin.

This graph shows three different types of support that can be found in this approximate area…

The weakest sign is the rising trend line in blue. These lines are drawn very differently by different analysts. However, the general theme remains the same and most retracements will lead back to some such support level.

Next is the breakout level (dotted purple line) of $8,300 that was first crossed to the upside with strong momentum on November 25th. One could argue that this is not the only breakout level on the chart ($11,750 for example), but it is the one that seems most relevant to me.

The third is the 200-day moving average (yellow line). This is the least subjective of the three and in traditional markets is considered a very compelling indicator. At the moment, it’s reading $7,421. However, if we see continued consolidation or even orderly price declines over the next few days, it should rise nicely to be inline with the other two indications.

Many thanks as always for reading the reports and sending me your questions, comments, and feedback. I’m going out to meet some clients now in Zurich, then hop a train over to Davos for the afternoon.

Have an amazing day ahead!

This content is provided for information and educational purposes only and should not be considered to be investment advice or recommendation.

The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro.

Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose.

Cryptocurrencies can widely fluctuate in prices and are not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework.

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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Analysis

Pre-Market: Bulls Try to Fight Back after Ugly Overnight Session

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Following the steep late-day downturn on Wednesday, which followed the not-to-hawkish FED meeting minutes, Asian markets and US equity futures continued lower with a vengeance. The very active overnight trading is another sign of the regime change in traditional financial markets that we have been monitoring for the last two weeks, ever since the “Black Monday of 2018”.

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Dow Futures, 4-Hour Chart Analysis

EUR/USD Changing Behavior

The European session brought about an oversold bounce that stabilized markets from stocks to currencies. The EUR/USD pair that has started acting “normally” considering its relationship with US Treasury yields lately, is headed south once again, trading only 0.5% above its recent correction lows after clearly breaking below the rising trendline.

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EUR/USD, 4-Hour Chart Analysis

The bull-trap that we identified a few days ago was the start of the current leg lower, and if the regime change will be persistent, the most traded forex pair could be back to the role of the “risk-on/risk-off” indicator that has been the privilege of commodity currencies in the last couple of weeks.

USD/JPY, 4-Hour Chart Analysis

The Japanese Yen is showing notable strength after its overbought dip, and the primary safe-haven currency could be in for more gains, should the risk-selloff continue. The Yen also gained ground on the common European currency, following the dovish ECB meeting accounts and the misses in the German IFO business climate indicator and the British GDP, which all question the European growth-monetary tightening narrative.

Canadian Dollar in for a Wild Ride

USD/CAD, 4-Hour Chart Analysis

With the Canadian retail sales report and the US crude oil inventory data coming out soon, forex traders should expect sizeable moves in the recently weak currency, while the USD should also be very active during the US stock market session.

All eyes are on Treasury yields again, with the slight correction today helping the bounce in stocks and other risk assets. The Nasdaq could be the motor of a stronger rally on Wall Street, but we wouldn’t bet the house on that, as the short-term technical setup remains bearish, and a re-test of the correction lows is still the most likely scenario for the coming weeks.

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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4.7 stars on average, based on 109 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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Market Overview

Play that Funky Market

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There’s only one way to explain what’s happening in the markets right now.

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It’s FUNK!

@MatiGreenspan
eToro, Senior Market Analyst

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Today’s Highlights

  • More Market Funk
  • No way but Right?
  • More Crypto Vol

Please note: All data, figures & graphs are valid as of February 22nd. All trading carries risk. Only risk capital you can afford to lose.

Traditional Markets Funk

Everything was going fine on Wall Street, they came back from lunch in a buying mood, but somehow things started to turn sour. By about an hour before the close things started to get downright ugly and by now we’re more than 500 points off the peak of that yellow circle and we’re now 3.82% from the all-time high.

Once again, the movement began in the bond markets, with the yields on the 10 Year spiking to a new high of 2.94% by the end of the day.

And of course, volatility can be seen with the VXX shooting up into the close.

Italian Splinters

It’s been five days since Italy stopped publishing opinion polls ahead of the national elections on March 4th in order to stop them having an influence on polling day itself.

That said, as we learned in Brexit and the Trump elections, polls can’t always predict what’s going to happen and in Italy, even less so. And this one is set to be even more interesting than usual.

Nevertheless, some analysts have come to the conclusion that the only party with an actual shot of winning an outright majority is Forza Italia, led by Silvio (I can’t believe I’m even writing this) Berlusconi.

This is still anyone’s game though, and even though there are 945 seats across two Houses of Parliament, alliances are so fractured that candidates are now battling for every single voter.

For the markets it’s still not clear what the effects might be, but as Europe’s 4th largest economy, and with the EU’s 1st largest economy still in a political deadlock, I’m looking squarely at the Euro.

In this chart, we can see the effect that a decisive election had on the EURUSD on April 23rd (yellow circle). Notice the large gap up that seemingly took the market from flat to flying in a single weekend when it became clear that Marine Le Pen had no chance of victory.

Crypto Volatility Continues

When Wal-mart’s stock dropped 10% on Tuesday it was a really big deal but when Bitcoin dropped an equal percentage on Wednesday, somehow it just doesn’t seem all that significant.

On that thought, here’s a meme I made yesterday. 🙂

That’s just the level of volatility that we’ve come to expect from this market. So please be aware that when I say cryptos are volatile, what I mean is they’re extremely volatile.

One thing that I keep noticing in the crypto-market is that when things are going up, we can expect to see different levels of returns in different coins and general divergence. However, when things are going down the correlation gets stronger and everything falls together.
You should be able to see that in this chart pretty clearly…

As always, let me know if you have any questions or if you need anything further.

Have a groovy day!!

This content is provided for information and educational purposes only and should not be considered to be investment advice or recommendation. The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro. Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose. Cryptocurrencies can widely fluctuate in prices and are not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework.

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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Analysis

Daily Analysis: The Usual Post-Fed Pump and Dump…

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Wednesday Market Recap

Asset Current Value Daily Change
S&P 500 2700 -0.51%
DAX 12,470 -0.14%
WTI Crude Oil 61.28 -0.83%
GOLD 1325.00 -0.43%
Bitcoin 10480 -8.71%
EUR/USD 1.2336 0.61%

The script that we laid out for the FOMC meeting minutes has worked almost perfectly, with the major US indices completing a roundtrip that triggered most of the “weak” stop-losses, before a powerful move lower into the close.

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The predictable late-session intraday volatility aside, markets were quiet and choppy for most of the day, and the Dow, the Nasdaq, and the S&P 500, all closed just slightly lower, while covering 2% during the session, with the tech-index’s relative strength evaporating in late trading.

S&P 500 Futures, 4-Hour Chart Analysis

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Forex Markets and Commodities

What drove the decline in equities was the renewed rise in US Treasury Yields, and to answer the most important question of the day; yes, in fact, the yield-Dollar correlation of the past few months broke down, and today the Greenback rallied together with bond yields.

10-Year Treasury Yield, 4-Hour Chart Analysis

While that is how it should work according to common sense and economic theory, the recent inverse correlation helped a lot of trends in reaching extremes, and those extremes now might reverse.

The outperformance of US markets, the Euro strength, and the weakness in European equities were among those trends, and it’s interesting to see that the bullish technical setup in the EUR/USD is crumbling and the US indices are in the deepest correction since the Brexit.

EUR/USD, 4-Hour Chart Analysis

While there is no assurance that these changes are permanent, for now, we remain short-term bearish on US equities, and continue to look for upside in the battered Dollar.

At the end of the day, the Dollar finished higher against all of the major fiat currencies, although the Yen showed notable relative strength amid the stock rampage near the closing bell. Interestingly the USD vs. risk-on pairs trend continues to lead the other asset classes, as we have noted several times, and that could be something to monitor in the coming days and weeks.

Commodities had a mixed but ultimately bearish session, with oil and gold suffering both suffering losses amid the risk-off shift, although crude already traded lower before the FOMC release, while gold traded in close correlation with the Euro throughout the day.

Cryptocurrencies

The segment had a decisively bearish session, with only a few coins showing considerable relative strength amid the sell-off. Bitcoin, Litecoin, Dash, and Monero are still the leaders of this cycle, while Ethereum is the most notable laggard, pulling most altcoins lower as well.

ETH/USD, 4-Hour Chart Analysis

On a positive note, the majors held up relatively well amid the stock turmoil, but the next few days will be crucial, as important support levels could be tested. That said, most of the coins are well clear of the crash lows, and there is more than enough support below that, combined with the still present bullish signs should keep investors confident that a new uptrend is underway and new rally highs are ahead.

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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4.7 stars on average, based on 109 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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