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Analysis

Bitcoin is Falling

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Sure there are other things going on in the market right now but who cares about them?

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With the VIX currently hovering at record lows, there isn’t much volatility or movement in the stock markets right now. Frankly, the kind of movements we’re seeing these days in the cryptocurrency markets are astonishing and are some of the biggest seen in any market since the beginning of time.

I mean, we could talk about President Trump firing the FBI director but really that would just be beating a dead horse. Besides, I’ve made a conscious decision not to let President Trump dictate what I write about and I’m pretty sure you’re tired of reading it by now.

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Poor Mark Carney though. The Governor of the Bank of England said some really interesting things yesterday and managed to move the Pound Sterling by about 30 pips. It’s just that during the time frame of that announcement Bitcoin moved more than $50 a coin.

Mati

What’s going on?

Well, the ride up was really nice. From a low of $1141, a coin on April 13th to a high yesterday of $1905 represents a move of more than $750 a coin (about 40%) in less than a month. This is a high-risk market though and is prone to rapid fluctuations.

The $150 pullback that we saw last night somehow seems like a normal retracement but it did manage to trigger a few stop losses.

The Scalability Issue

One issue that is on the minds of investors this morning is the issue of scalability. As the network grows, the bitcoin blockchain is finding it harder and harder to process transactions.

There have been some amazing updates from countries like Japan, India, Australia, and even Russia that indicate bitcoin and other digital currencies will be much more widely accepted in the future.

However, all this excitement is putting some serious strain on the system. At the time of this writing, there are over 160,000 transactions stuck in the backlog and pending confirmation by blockchain miners. Meaning, that it’s taking a long time to process payments right now.

To put it in context, I personally tried to send a bitcoin payment last night before going to bed and as of this morning, 10 hours later, it still has not been processed.

So certainly the prospect of everyday use increasing rapidly is extremely exciting but if it takes 10 hours to make a payment it’s not a very useful system.

So What’s Next?

The rate of growth for all cryptocurrencies seems to be slowing down but has not stopped. On Monday, we celebrated the market cap of all cryptocurrencies passing $50 Billion for the first time. At the moment, the number stands at about $54 Billion. So the growth this week is a bit less than $1 Billion per day on average.

The seven-day chart shows a steady incline but it’s nothing near the $5 Billion days we saw last week.

The market cap of bitcoin peaked yesterday at $30.5 Billion but since then has lost about $1 Billion. So where did that money go?

For the most part, it seems to have been redistributed to other cryptocurrencies. During the same period, the Ethereum network grew by $200 Million and Ripple’s value has gone up by almost $700 Million.

So, for the most part, at least for the time being, it seems that in light of the overcrowded bitcoin blockchain, cryptotraders are reallocating their funds to other networks, ones that are faster and don’t have the same issues.

On the other side of the coin, the move from last night could also be just a temporary pullback. There are some very large players entering the market at the moment. Players who have a lot invested and want to see the price up to $5,000 or $10,000 a coin. For them, a $150 pullback in the price is nothing but an opportunity and even if we do see $1200 again it will only be a chance to get more at a better price.

Let me know if you have any questions or comments on the above or if you need any sort of clarification. Have an amazing weekend.

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

Past performance is not an indication of future results. All trading carries risk. Only risk capital you’re prepared to lose.

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: Oil Extends Rally as Nasdaq Leads Stocks Higher

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Friday Market Recap

Asset Current Value Daily Change
S&P 500 2749 1.38%
DAX 12,483 0.18%
WTI Crude Oil 63.58 1.29%
GOLD 1330.00 -0.16%
Bitcoin 10,14 -0.09%
EUR/USD 1.2295 -0.28%

US equities built up some bullish momentum towards the end of the week, ignoring the technical damage that the volatility-crash caused, and the major US indices rallied into the close today, squeezing the shorts. The Nasdaq, which led the rally as we expected, took out the key 6850 level in late trading and added another percent to, incredibly enough, finish only a hundred point of the all-time high.

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NASDAQ 100 Futures, 4-Hour Chart Analysis

Should the tech benchmark retest the high next week, it will be amid very strong negative divergences, but hey, those divergences have been building for months now. The rally in equities was boosted by the dip in Treasury yields, especially at the long end of the curve, while Amazon continued ot lead the charge, closing right at the historic $1500 per share level.

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Russell 2000 (Small Cap) Index, 4-Hour Chart Analysis

The advance in the Dow and the S&P 500 is much less convincing and with small caps also lagging the tech-behemoth juggernaut, we remain skeptical regarding the sustainability of the move. That said, if the broader indices stay above the key levels, we will be trading the long side in equities, even as from an investment standpoint, valuations are still way above acceptable.

Forex Markets and Commodities

The lackluster performance of European and Asian stocks adds to the negative divergences, especially as the Euro stopped appreciating against the Greenback, and that should be helping stocks of the old continent. Of course, the DAX and the EuroStoxx 50 could play catch-up next week, barring another surge in the common currency.

EUR/USD, 4-Hour Chart Analysis

The most-traded forex pair remains in a short-term downtrend, as it failed to recapture the previously broken rising trendline, and the commodity related risk-on currencies also remained under pressure. The Canadian Dollar did bounce back off yesterday’s 8-week lows, boosted by the much hihger than expected inflation release and the jump in the price of crude oil.

USD/CAD, 4-Hour Chart Analysis

Oil benefited from the positive shift in sentiment, while the Syrian situation, which took a backseat in the headlines, still supports the rally. The Japanese Yen and gold were stable amid the risk-rally and that adds to our suspicions regarding the upside potential form these levels.

Cryptocurrencies

The segment started out the day with a strong bounce that carried the major coins higher by around 10%, but given the recent steep short-term pullback, even that wasn’t enough to turn the tide, and the day ended with an (almost usual) sell-off after the US close. Despite the recent volatility, the overall picture is still encouraging, with most of the majors being safely above the crash lows, likely in a new bullish cycle that has the potential to last for several more weeks or even months.

While new all-time highs are it guaranteed following the 60-70% declines among the largest coins, but even without those, plenty of upside potential is left for investors. With that in mind, investors should hold on to their coins and even add to their holdings on the short-term dips like the current one.

ETH/USD, 4-Hour Chart Analysis

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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

Technical Analysis: Majors Stage Rally but Strong Levels Still Ahead

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The cryptocurrency segment has recovered from a broad correction today in early trading, with the most valuable coins all turning into green during the session, despite the bearish start to the overnight session. With bottom-to-top gains of up to 15%, the rally helped in easing the worries of bulls, especially in the case of the relatively weaker coins.

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Bitcoin and most of the largest altcoins remained stable during the selloff, and BTC recaptured the $10,000 level quickly after trading as low as $9600 overnight. The initial rally topped out near $10,400, and the coin is trading back near the $10,000 level, as the bullish momentum faded away somewhat.

BTC/USD, 4-Hour Chart Analysis

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That said, we expect the uptrend to continue even if the correction could still carry Bitcoin lower. Further strong support is found between $9000 and $9200, while targets are ahead at $11,300, $13,000, and $14,250.

ETH/USD, 4-Hour Chart Analysis

Ethereum showed strength during the bounce again after yesterday, together with the early leaders of the rally, and although the coin dipped below the $845 level in the second half of the session, the signs remain positive for bulls. Support levels are now found at $780, $740, $625 and $575, while resistance is ahead near $910 and $1000.

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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: Stocks Refuse to Fall Even as China Takes Over Key Insurer

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Although it should have been a very quiet week in China, thanks to the New Year celebrations, the recent surge in volatility and the plunge in equities didn’t pass without consequences in the key market. Just shortly after effectively shutting down the Chinese version of the Volatility Index (VIX) (presumably to calm the markets…), one of the main actors of the monstrous financial web, Anbang, of the country had to be taken over to avoid a systemic event and stop the “creative” financial engineering that involved criminal activity (the shadow of 2008).

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China will likely need many more duck-tapes like this one if it wants to stop the largest credit bubble in human history to collapse, but for now, the solution could work. Equity futures edged higher since yesterday’s volatile close, and as the major US indices are holding up well, not far off last Friday’s highs, our bearish short-term view might have to be revised.

Nasdaq 100 Futures, 4-Hour Chart Analysis

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As we discussed before, the long-term uptrend is intact, and we expect at least a re-test of the highs even if we are in a large-scale top formation, but we thought that the technical damage caused by the crash three weeks ago would require more healing.

We are not turning bullish just yet, but today’s session could finally decide if we the BTFD-crowd is strong enough to turn the tide after the choppy drift lower this week. We are still focusing on the Nasdaq, as the broader market seems to be following the lead of the tech benchmark, and a move 6850 (in the Nasdaq 100 futures, and still the 2735 level in the S&P) would be a very positive sign for bulls.

DAX Index, 4-Hour Chart Analysis

The German DAX index is also showing some tentative short-term relative strength although it remains almost 10% below its all-time high, and it remains a strong negative divergence to be monitored.

Forex Markets Quiet

EUR/USD, 4-Hour Chart Analysis

The main pairs are trading in a choppy narrow range today after the strong move in the Yen and the drop in the USD yesterday. US Treasury Yields are edging lower today, helping the calm in equities and currencies, but on a bearish note, commodity currencies failed to rebound so far, and they were providing good signals since the crash. Day-traders should note that the Canadian Dollar will likely be very active again, with the Canadian CPI report coming out pre-market.

To sum the outlook up, we are still leaning on the risk-off side here regarding the short-term outlook, but we wouldn’t bet the farm on that, as there are mixed signals before the weekend.

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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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