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The Cryptocurrency Crash Hasn’t Spilled Over Into Stocks, Yet

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Carnage in the cryptocurrency market has yet to bleed over into stocks, something analysts at Wells Fargo says is definitely in the cards.

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Danger Lurks for Wall Street

With equities riding record highs, few investors are paying attention to the possibility of cryptocurrencies raining down on their parade. According to Christopher Harvey of Wells Fargo Securities, this scenario isn’t being given as much consideration as it deserves.

In a recent interview with CNBC, Harvey said: “We see a lot of froth in that market. If and when it comes out, it will spill over to equities.”

“I don’t think people are really ready for that,” he added.

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The cryptocurrency market tanked another 23% on Wednesday, hitting nearly one-month lows before rebounding sharply in the latter half of the day. At their lowest, bitcoin, Ethereum and dozens of other major coins shed hundreds of billions of dollars in market cap. Bitcoin alone had declined some 50% from its record high last month.

In Harvey’s view, a more sustained drop would be needed for cryptos to materially impact the stock market. Until now, crypto traders have bought every major dip stretching all the way back to the start of 2017.

Crypto carnage has already hit bitcoin proxy stocks, a broad cross-section of equities with direct and indirect exposure to the blockchain market. The tech-focused proxy shares rebounded on Wednesday in chorus with the rest of Wall Street.

Goldman Sachs has also warned about cryptocurrency speculation, arguing that a sustained rally in bitcoin may cloud an otherwise rosy outlook for the U.S. economy. In a report issued in late December, Goldman analysts said credit imbalances and crypto speculation were among their biggest concerns going into 2018.

Stocks Continue to Surge

Interestingly, Harvey has given the S&P 500 Index a year-end price target of 2,863, according to CNBC. On Wednesday, the large-cap index closed at 2,802.56, for an astonishing year-to-date return of 4.8%. Either the Wells Fargo analyst has severely underestimated the bull market or is expecting a few major pullbacks en route to the year-end target.

Wall Street’s major indexes rose between 0.9% and 1.3% on Wednesday amid better than expected corporate earnings. As of Friday, roughly 5% of S&P 500 companies had reported a blended earnings growth rate of 10.2% for Q4, according to financial researcher FactSet.

Although gloom and doom scenarios haven’t fazed stock traders, there are early signs that the bull market may be overstretched. Aside from the huge valuation risks currently facing Wall Street, volatility has crept noticeably higher in recent weeks. The CBOE VIX Volatility Index has risen in eight of the last nine sessions to trade at its highest level since November. Under normal circumstances, the VIX trades in the opposite direction of the S&P 500 Index.

Share values are also being supported by high-growth prospects under President Donald Trump, who scored a major legislative victory last month by passing a new tax bill. Even the Federal Reserve, long at odds with the president, has lifted its growth outlook thanks to the historic bill.

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 145 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Analysis

Daily Analysis: Dollar Rebounds as Stocks Struggle at Key Levels

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Friday Market Recap

Asset Current Value Daily Change
S&P 500 2731 -0.08 %
DAX 12,451 0.86%
WTI Crude Oil 61.64 0.31%
GOLD 1351.00 -0.32%
Bitcoin 10030 -0.52%
EUR/USD 1.2405 -0.78%

The main US stock indices entered a crucial zone during the overnight session that we have been monitoring throughout the last two weeks, as the line-in-the-sand zone for the correction. Despite that, the question regarding the fate of the move has been postponed for next week, as the S&P 500 and the Dow failed to clearly rally above the zone, while the Nasdaq showed relative weakness after leading the market higher during the bounce.

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S&P 500, 4-Hour Chart Analysis

We are still leaning on the side of the bears regarding the short-term outcome, as the technical damage of the Volatility-Armageddon seems bigger than what a straight-line recovery would suggest. That said, the fundamental news was great today (not counting the latest developments in the Russia-Gate), as the US housing market sent positive signals amid the rising yields, while the UOM Consumer Sentiment Index also beat expectations.

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On an interesting note, the rise in yields paused, despite the positive economic news, and in this perverse world that led to a strong rebound in the Dollar, right after the new multi-year highs in the EUR/USD pair during the overnight session.

EUR/USD, 4-Hour Chart Analysis

The Euros weakness helped equities of the old continent is finally showing some relative strength, and the same goes for Japan, as the oversold readings in the USD/JPY pair that we noted also led to a rebound, back above the 106 level. While the bounce slightly helped the negatively diverging benchmarks, the clear technical weakness remains another bearish sign for the coming weeks.

DAX, 4-Hour Chart Analysis

The Dollar’s bounce pushed the price of gold lower too after the encouraging rally, but the Shiny Metal remains just a tad below its rally high, which is commendable, given the improving risk-sentiment throughout the week, even as another short-term correction is possible here. Crude oil enjoyed another positive day, although it remains well below its recent highs, just as the commodity-related risk-on currencies, where we already noted the relative weakness yesterday. That also adds to the cautious outlook for equities even in the face of the 5/5 positive days this week.

Gold, 4-Hour Chart Analysis

Cryptocurrencies

The crypto market continued to show robustness amid the hectic trends in traditional assets, and today’s meager correction adds to the bullish signs that emerged last week and remained with investors throughout this week. While not everything is rosy, with still several coins in dominant downtrends, including Bitcoin and Ethereum, there is clear leadership behind the rally, and if the coming short-term pullbacks remain in-line with today’s move, bulls should have their hopes up

BTC/USD, 4-Hour Chart Analysis

What would change the bullish posture is a return to the “everything moves together with high volatility and bearish volume” regime of the preceding steep sell-off, but, for now, that seems unlikely, and a quiet consolidation this weekend would be just what the doctor ordered for the segment.

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 96 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

Pre-Market: US Stocks at Make-or-Break Levels as Euro Tests 40-Month Highs

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Traders might be in for another exciting Friday session in the US, as although the coming Chinese year of the dog means that liquidity might be lower than usual, the aftermath of last week’s crash is in a crucial phase. The surge in cryptocurrencies also halted a bit, and all major asset classes look ripe for an action-packed day, including bonds, commodities, and fiat currencies.

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The key levels in the major US indices that we have been monitoring ever since the crash are now in play, with the Nasdaq actually being already above the corresponding resistance zone. That said, apart from the tech benchmark, the Dow and the S&P 500 are hovering right near the “hot” zone, and before a clear move above it, bears could still have their moment, with a possible re-test or even new correction lows in the coming weeks.

S&P 500 Futures, 4-Hour Chart Analysis

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As we noted previously, it’s unlikely that the bull market is dead just yet, despite the fact that we agree with Peter Toogood (really) that “this market is nuts…” from a valuation perspective, but short-term, these are the levels where the bounce should fail, in theory, that is.

At this point, even bulls should take a step back, and wait for the next pullback before jumping in, as the short-term indicators are stretched, while bearish traders could be looking for entry points today, and long-term investors could just enjoy the show.

Heavy Trading in Forex Markets

Although equities and Treasuries are mostly in the headlines, the most important forex pairs are also very active, with the Euro, the Dollar, and the Yen all being pushed around by the quick repositioning of the big players.

EUR/USD, 4-Hour Chart Analysis

This creates a great day-trading environment, with clear, significant swings in both directions, within the strong trends. The Dollar is generally trading lower since the bounce started, and the EUR/USD pair already managed to reach a new 40-month high during the Asian session, before turning lower in European trading.

USD/JPY, 4-Hour Chart Analysis

The USD/JPY pair traded with a 105 handle today, again a more than 1-year low, and the trend looks clear, even as the short-term picture is oversold. Gold might also be preparing for a new multi-year high, so everything looks set for more fireworks in currencies too. Stay tuned.

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 96 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

Glorious Happy Dog

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We would like to wish a very happy New Year to all of our clients, partners, and colleagues in China and around the globe.
The Dog is very noble and compassionate and unlike the Cock, she has a strong sense of the difference between right and wrong.
As well, today holds mystical significance in both the Jewish and Muslim calendars being the first day of the new month of Adar and Jumada Al-Thani respectively.
For Jews, it is a time of happiness and a time to change your fate. For Muslims, this is the last month of Winter. So no matter how cold it is outside we know that it will not last and very soon we will be able to prepare for a spiritual journey.
In the words of one of my kid’s favorite movies, Rock Dog, we’ll be Glorious.
https://www.youtube.com/watch?v=stctZ-8akds
eToro, Senior Market Analyst

Today’s Highlights

  • Trading Inflation
  • Dollar Getting Slammed
  • Cryptos Continue Recovery
Please note: All data, figures & graphs are valid as of February 16th. All trading carries risk. Only risk capital you’re prepared to lose.

Traditional Markets

The so-called rout on Wall Street has now faded like a bad bizarre dream and though we’re still a bit off the top, the last 5 sessions have been solid green.
Here we can see traders remaining loyal to the Dow Jones…
Now that the markets know inflation is back in town, analysts will be dusting off the old playbooks and should start coming out and over the next few days, giving us the historical perspective on how to position for it.
In the meantime, it’s manifesting in a weaker US Dollar. Despite the higher expectations for the Fed to get aggressive on rates, the Dollar is sinking fast.
At the moment, the US Dollar Index is at its lowest point since 2014.
With that, we’ve also had breakouts in several dollar related currency pairs on the long term charts.
Here’s the new top in the EURUSD
…and a breakout of the long term range in the USDJPY.
The main benefactor of the weaker Dollar seems to be Gold, which also may be benefiting from increased appetite for a safe place to store value.

Cryptos

Speaking of a safe store of value, we’re also seeing a bit of a sprint to the crypto markets. Bitcoin did indeed take out 10k yesterday. However, the breakout didn’t last very long and we’re again below the line in many places around the world.
Similar to some of the previous rallies, the buying pressure seems to be coming mainly from Japan.
Bitcoin volumes in the world’s top crypto country have been strong throughout February, with an additional push higher yesterday.
Though the volumes in South Korea are still relatively weak, the premiums are creeping back.
Traders in both Japan and South Korea are now paying about 6.5% more for bitcoin than traders in the West. Though the US Dollar value holds no psychological significance to them we can see that both countries are buying bitcoin at well above $10,000.
It will be interesting to see what happens this weekend when cryptotraders have more time to analyze the market and take actions.
Wishing you a glorious weekend!!
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.

eToro (EU) Ltd, authorized and regulated by the Cyprus Securities Exchange Commission (CySEC)

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Best regards,

Mati Greenspan

Senior Market Analyst

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eToro: @MatiGreenspan | Twitter: @MatiGreenspan | LinkedIn: MatiGreenspan | Facebook:MatiGreenspan

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 29 rated postsSenior Market Analyst at Etoro.com.




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