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Daily Analysis: Gold Nears $1300 as Stocks Tumble on War Fears

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Thursday Market Recap

Asset Current Value Daily Change
S&P 500 2446 -1.07%
DAX 12014 -1.15%
WTI Crude Oil 49.22 -0.62%
GOLD 1290.00 0.85%
Bitcoin 2434 4.23%
EUR/USD 1.1761 0.04%

The North Korean escalation has turned this vacation week into a rollercoaster ride for investors, as markets are trying to judge the real probabilities of a, possibly nuclear, conflict. While fierce statements have been thrown around by both sides, the chances of an actual US intervention still seems slim, despite the recent risk-off turn in financial markets. Equities are in a broad decline globally, while currencies and commodities turned very choppy amid the escalation, with the worse than expected US PPI data adding insult to injury.

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Dollar Index, 4-Hour Chart Analysis

Gold is the clear winner of the day so far, as the precious metal was boosted by safe haven buying and the weak US release as well. Gold is now just shy of the long-term resistance at $1300, and we still expect the level to fall, with the long-term fundamentals being very bullish for the metal.  The rise in the VIX (a three month high) is also reflecting the negative sentiment, and that helped the Yen in hitting yet another high against the Dollar, although the Greenback is holding on to its gains compared to the risk-on currencies. The USD sold-0ff following the bearish PPI report, but safe haven buying helped to limit its losses in the choppy environment.

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Gold, 4-Hour Chart Analysis

Cryptocurrencies

The sector is still clearly in an uptrend following the long-lasting correction in July and the uncertainty surrounding the Bitcoin fork. The most valuable currency is only slightly off its recent all-time highs, while the rest of the market is also edging higher, despite the current short-term consolidation, and Litecoin, Dash, and Monero are all within striking distance of their respective highs. While Ripple, and ETC are still weak, and NEM is well off its all-time highs, the strength is small cap coins should be an encouraging sign for investors, and odds favor bullish moves even in the current laggards of the segment.

ETH/USD, 4-Hour Chart Analysis

Technical Picture

The S&P 500 turned lower off its all-time highs after a period of very low volatility, as the North Korean situation triggered a sell-off, with the weak market internals adding to the decline as well. The benchmark is still in a long-term uptrend, but odds now favor a decline to 2415, with trendline support currently found slightly below that level. In the case of a trend-break, the next major target zone for the correction is near 2350.

S&P 500, 4-Hour Chart Analysis

Key Economic Releases on Thursday

Time, CET Country Release Actual Expected Previous
1:50 JAPAN PPI Index 4.2% 2.3% 2.1%
10:30 UK Manufacturing Production 0.0% 0.0% -0.2%
10:30 UK Goods Trade Balance -12.7 bill -11 bill -11.9 bill
14:30 CANADA NHPI 0.2% 0.5% 0.7%
14:30 US PPI Index -0.1% 0.1% 0.1%
14:30 US Initial Jobles Claims 244,000 244,000 240,000

Key Economic Releases on Friday

Time, CET Country Release Expected Previous
8:00 GERMANY Final CPI 0.4% 0.4%
14:30 US CPI Index 0.2% 0.0%
14:30 US Core CPI Index 0.2% 0.1%

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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: US Stocks Return on a Bearish Note after Long Weekend as Dollar Rallies

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After the hectic session on Friday, US equities took a long break thanks to the Presidents’ Day yesterday, but the technical setup that we have been monitoring remained intact. The major indices formed a short-term top exactly in the Line-In-The-Sand area that seemed likely to stop the post-crash rally at least temporarily.

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S&P 500, 4-Hour Chart Analysis

The key levels to watch during today’s session will likely be 2735 and 2700 in the S&P 500 (25350 and 24800 in the Dow), but below 2735 the benefit of the doubt is on the bears’ side.

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So short-term, we continue to lean on the bearish side here, at least short-term and we expect the market to head for a test of the correction lows in the coming period. European and Asian markets continue to underperform their US peers, despite the strength in the Dollar, and that doesn’t bode well for bulls, as Europe has been spearheading the decline so far.

Dollar Still in the Center of Attention

EUR/USD, 4-Hour Chart Analysis

Europe bounced higher today following the release of the better than expected (but worse than the latest) German ZEW Economic Report but that didn’t stop the drift lower in the common currency. The EUR/USD pair fell back below 1.2350 after the fake-out on Friday that indeed proved to be a bull trap as we speculated, and a test of the rising trendline is now possible in the coming days.

USD/JPY, 4-Hour Chart Analysis

On a positive note, the main safe-haven assets, the Japanese Yen and Gold, are also losing ground to the Greenback today, and that could point to a less significant shift in the risk appetite of investors.

That said, commodity currencies are still under pressure, and they have been a good proxy so far for judging the risk-on/risk-off divide, and with oil and copper turning lower this morning, another round of selling could be underway.

WTI Crude Oil, 4-Hour Chart Analysis

Looking at the bond markets, rates are edging higher across the yield curve and the Volatility Index (VIX) is also on the rise again, and all looks set for another active day in US markets, with plenty of trading opportunities in equities and currencies alike.

We expect Wednesday to be the most interesting day of the week, as the arguably most important release, the FOMC meeting minutes will come out in late trading. Until then, the volatile, technicals-led trading could continue.

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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

Crypto Update: Litecoin and Bitcoin Hit New Rally Highs

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Another day, another round of bullish developments in the cryptocurrency segment, even in the face of a risk-off shift in traditional markets. Following the lead of Ethereum Classic, just like in the previous leg higher, Litecoin also pushed to new rally highs today in early trading following the LCC hard fork.

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BTC/USD, 4-Hour Chart Analysis

This time around, Bitcoin also joined the two undoubted leaders of the market, despite the still slightly overbought short-term momentum readings, while the also relatively strong Monero is still in its short-term correction. Boosted by positive news out of South Korea, the major coins reached the $515 billion mark in market capitalization, although several currencies, most notably Ethereum and Ripple are still underperforming.

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LTC/USD, 4-Hour Chart Analysis

We expect trading activity to pick up today, as US markets return to action, and that could cause more volatile moves than in the last few days. As correlations between the majors continue to decline, the individual charts are more and more important, and we expect rotation to continue between the coins.

Ethereum Classic Hits another Target, Up 200% off the Low

ETC/USD, 4-Hour Chart Analysis

ETC broke-out of its short-term correction yesterday, staying ahead of the rest of the market in this cycle, and it rallied up to the next major resistance zone near $43, with only the all-time high remaining ahead as an obstacle before a new record high.

As we noted yesterday, the coin now is now not in the optimal long-term buy range, and it got downgraded to neutral in our trend model as well after turning bullish on the 2nd of February. That said, further gains are likely, and traders should still play the trend, but long-term investors could already cash in on some of the gains.

Apart from ETH and XRP, Bitcoin Cash, Cardano, IOTA, and EOS are also lagging the leaders today, while NEO also failed to substantially move above its short-term correction, despite yesterday’s strength.

Given the positive signs, we expect the rally to continue in the segment, even if several altcoins continue the current correction in the coming days.

Stay tuned for our detailed technical analysis later on today.

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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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Analysis

Cryptocurrencies: Five Reasons Why The Worst Is Behind

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February 5, 2018 is the day when investor fear was replaced by greed. That marked the current bottom for cryptocurrency prices.  Simple enough to make this claim now that we have had a few good trading days.  But how do we know for sure that the worst is behind?

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Oh if there was a reliable way to measure fear and greed in this nascent crypto world. It could tells us emphatically when market tops and bottoms are occuring, we could make some real digital dough.  True, there are lots of tools that have been tried on traditional markets likes stocks and bonds.  But if these will truly work in crypto land remains to be proven.

Sometimes the most reliable barometer is nothing more complicated than “gut feel”.  Here is what feels encouraging when I apply this test.

The February 5th Bottom

Volatility has been a major feature in crypto trading since day one.  After better than a 7000% appreciation in Bitcoin and Ether in 2017, should a massive correction be a surprise? Between December of last year and February 5th, Bitcoin lost almost two thirds of its value while Ether dropped almost 50%.  We could go on listing every currency but you get the point.

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It this were the infamous Dutch tulip bubble of 1634 the carnage would have continued endlessly.  With crypto, investors collectively found value starting on February 5.  Since then, Bitcoin has gained 50% and Ether about 30%.  That has all taken place in a matter of a two weeks.

This is unprecedented.  When the dotcom price burst in February 2000 the Nasdaq began a 75% fall before hitting bottom in November.  It took fully 14 years before the Nasdaq fully recovered.

Running Scared Of Government

Many investors try to connect the stock market correction with the slide in the cryptocurrency markets.  That would be a mistake because the circumstances are quite different.

The crypto correction and frightening headlines coming from China and Korea about threatened government crackdowns had everything to do with investors heading for the sidelines. This is not to ignore the mechanical influences like the slow transaction speeds etc. But the minute the word government comes into the picture, the worst fears take over.

With the benefit of time, investors are slowly coming to the realization that no government regulation can effectively control ownership of cryptocurrencies. They can however, regulate the operation of exchanges and that is a good thing.  This offers the chance to clean up the bad practices, excessive fees and outright scams which have hurt the individual investor.  

Initial investor reaction to the Chinese and Korean government news reminds us of an important point.  There is no such thing as perfect information in the crypto market.  Even so called professional investors know very little.  The general public are price driven momentum players.  Even erroneous headlines move markets; facts take more time .  

A  Pickup In ICOs

It doesn’t matter if you are dealing with stocks bonds or Bitcoin, when investors are willing to put money in the most speculative sectors, that is a sign of market strength.  Recently we wrote an article noting a precipitous drop in capital raised from ICOs during January.

We used data compiled by ICO Watchlist.  These folks are the only ones collecting data and their numbers don’t alway agree.  But we are using their date consistently for comparative purposes.

From a monthly average of about $400 million during the four peak months of 2017,  January dropped to just $76 million.  Easy to understand, investors lost their confidence in high risk instruments.

Things are beginning to change. With the recovery of major currencies the ICO market is showing new life.  With more than a week left in the month, ICOs have raised over $176 million, according to ICO Watchlist.

These figures exclude the current ICO underway for messaging app Telegram that claims it has raised $850 million thus far in a $2 billion total effort.  If these initial reports prove accurate it would be the largest ICO on record and create bold headlines.

More Hedge Funds Are Coming

According to Autonomous hedge fund money is piling up to between $3.5 and $5 billion marked exclusively for crypto investing.  The rise is dramatic reaching 226 funds globally compared with about half that many as recently as 5 months ago.  At the start of last year there were just 37.

The Negative Headlines Are Gone

There is nothing like raising prices to force the media to seek explanations.  Now instead of naysayers like Warren Buffett being quoted incessantly, CNBC brings on Shark Tank host Robert Herjavec declaring the Bitcoin is “going to skyrocket again” the “blockchain technology is here to stay” and that more government regulation will be the key driver.

CNBC even dragged out an old forecast by Tom Lee prejecting Bitcoin at $25,000 this year and Kay Van-Petersen of Saxo Bank predicting Bitcoin at $100,000.

The market litmus that I call “ gut feel” is hardly scientific.  There are probably analysts of big data that can offer better supporting evidence.  But for now, things are looking pretty good.

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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4.3 stars on average, based on 21 rated postsJames Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.




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