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Daily Analysis: Markets Mixed as Commodities Remain Under Pressure

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Wednesday Market Recap

Asset Current Value Daily Change
S&P 500 2634 0.19%
DAX 12998 -0.35%
WTI Crude Oil 56.02 -1.72%
GOLD 1266.00 -0.11%
Bitcoin 13,897 16.45%
EUR/USD 1.1796 -0.23%

Donald Trump made headlines with yet another controversial decision today as the POTUS recognized Jerusalem as the capital of Israel, sparking strong reactions across the globe. The move will likely raise tensions in the Middle East, and furthermore, Mr. Trump urged Saudi Arabia to cease the blockade of civil war-torn Jemen, where a humanitarian crisis is quickly deteriorating. Despite the newsflow, crude oil and gold both had a negative session, as commodities remained under pressure, with strong selling in Asia setting the tone for the day.

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Stocks remained in a slightly chaotic trading range, as the global tech sell-off that also had its roots in Asia, eased and the US indices finished close to unchanged after a choppy session. Despite the recent correction, the major US benchmarks are still very close to their all-time highs, while their European and Asian peers are well below the record levels. Small caps lagged the broader market amid another round of tax-bill related speculation, with rumors of a 22% corporate tax rate instead of the widely expected 20% surfacing.

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

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The trends in bonds have been in the center of attention even, as some cracks are appearing on the wall of confidence that central banks built up by the QE programs. The US yield-curve flattening returned in earnest this week, as long-dated treasuries got bought while the short-dated bonds experienced selling.

A Week of Buying in TLT (Long Dated Bond ETF), 4-Hour Chart Analysis

Cryptocurrencies

The relentless rally of Bitcoin entered its next phase today, although this time around altcoins were mostly left out of the buying. The most valuable coin leaped across $13,000 and $14,000 as the unprecedented advance pushed the total market cap over the $240 billion mark, with the segment overtaking J.P. Morgan in the process (looking at you Mr. Dimon).

BTC/USD, Daily Chart Analysis

While the current rate of the advance is clearly unsustainable, and another sharp correction is very likely in the coming period, the public recognition of cryptocurrencies is at previously unimaginable levels. IOTA and Monero were the only major coins that could follow BTC in the early stages of the break-out, while Stellar Lumens also made headlines, but the altcoin sell-off in late trading caused a sharp correction in the leaders as well, with only Bitcoin continuing higher.

IOTA/USD, 4-Hour Chart Analysis

Key Economic Releases on Wednesday

Time, CET Country Release Actual Expected Previous
2:30 AUSTRALIA GDP 0.6% 0.7% 0.9%
15:15 US ADP Employment Change 190,000 189,000 235,000
15:30 CANADA BOC Rate Decision 1.00% 1.00% 1.00%
15:30 CANADA BOC Statement
17:30 US Crude Oil Inventories -5.6 mill -3.2 mill -3.4 bill

Key Economic Releases on Thursday

Time, CET Country Release Expected Previous
2:30 AUSTRALIA Manufactruing PMI 1.37.bill 1.60 bill
10:30 UK Halifax HPI 0.2% 0.3%
15:30 US Unemployment Claims 239,000 238,000
17:00 CANADA Ivey PMI 6.2% 6.3%
18:00 EUROZONE ECB President Draghi Speaks

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Analysis

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.

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Analysis

Long-Term Cryptocurrency Analysis: Look Out Below?

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After last week’s observation that a major top is in or near in the segment, the Bitcoin surge continued for almost a week, with Thursday’s wild session taking the coin as high as $19,000 (the article uses Bitstamp prices) on some exchanges. While the currency already pulled back by more than 20% the long-term picture is still extremely overbought and a much deeper correction is likely in the coming weeks.

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BTC spiked below $13,000 today, violating the primary weak support at $13,300, with further levels now at $11,300, $10,000 and $9000, but stronger support only found at $8200 and $7700. Next week’s futures launch could cause another jump in trading activity, and volatility is expected to remain very high amid the likely correction.

BTC/USD, Daily Chart Analysis

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While not all altcoins participated in the, supposedly, last part of the rally, IOTA, Monero, and towards the end of the week Litecoin, also stretched above all conventional targets with IOTA also turning exponential after a deal with Microsoft. The coin exploded by more than 350% before entering an initial sharp correction, breaking the steepest short-term uptrend. Strong support is only found at $3 and $1.5, but potential Fibonacci support is at $2.35.

IOT/USD, Daily Chart Analysis

Let’s see how the long-term charts of the other altcoins look after the crazy week.

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