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Daily Analysis: Volatility Disaster Drives Stock-Crash

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Monday Market Recap

Asset Current Value Daily Change
S&P 500 2611 -4.10%
DAX 12,687 -3.75%
WTI Crude Oil 63.61 -2.61%
GOLD 1344.00 0.47%
Bitcoin 7080 -15.12%
EUR/USD 1.2382 -0.51%

What we have been speculating on Friday, namely the possible implosion of the short-volatility strategies, played out today, as Friday’s decline turned into an outright crash in late trading. The Volatility Index (VIX) skyrocketed to almost 40, nearly tripling in value, and triggering a huge drop in the major indices, and an even bigger move in the volatility-related ETFs.

The S&P 500, the DOW, and the NASDAQ were all down by about 4%, and the losses mounted further after-hours, with the international equity futures following the US markets lower as well, pointing to an ugly open tomorrow. The bond market that has been highly correlated in recent days with stocks, is also in turmoil, as yields first continued higher, then collapsed across the board amid the accelerating market sell-off.

S&P 500 Futures, 4-Hour Chart

The VIX hit a new multi-year high during the move, and given the systemic nature of the possible effects, the implosion could very well continue in the coming days and weeks, even as no evident trigger is present. On a positive note, the other major asset classes didn’t react in dramatic fashion, but the next few sessions will provide more clues regarding the damage done among leveraged players and the possibility of further liquidations.

VIX, 4-Hour Chart

Among commodities, gold gained ground in the chaotic environment, while oil finished lower, driven by the risk-off turn. Despite the positive day, precious metals are still in correction mode, with gold trading below $1350, while oil’s sell-off barely penetrated last week’s low, leaving the uptrend intact for now.

Currencies were relatively stable during the steep decline in stocks, although the after-hour session saw some notable Dollar strength, while the recently surging Pound lost ground compared to all of its major peers. The Greenback was probably pushed higher by investors who started betting on a possible intervention by the Fed and other central banks that could halt the global tightening cycle, reversing the recent trends in Forex markets.

EUR/USD, 4-Hour Chart Analysis

Cryptocurrencies

The major coins had another day of carnage,  albeit with some encouraging divergences, with most of the coins plunging to new lows, taking out the levels set during Friday’s panic. As the turmoil in stocks intensified, the crypto segment turned even more volatile, but interestingly, Bitcoin and the rest of the majors held up above the prior intraday lows. With the declining trend still being intact in the sector, further volatile trading is expected, even as the oversold momentum readings point to a coming bottom, and as the majors already lost more than 60% on average compared to their record highs.

BTC/USD, Daily 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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4.7 stars on average, based on 399 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 Analysis And Chartbook: Fed-Optimism Sparks Bounce in Risk Assets as Dollar Falls

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Wednesday Market Snapshot

Asset Current Value Daily Change
S&P 500 2,656 0.73%
DAX 30 11,222 1.39%
WTI Crude Oil 54.72 2.49%
GOLD 1,227 0.42%
Bitcoin 4,456 2.39%
EUR/USD 1.1402 0.29%

Yesterday, risk assets had an ugly Wall Street session, with a lot of stocks hitting new multi-month or even multi-year lows, as bulls were running for the exits amid the sharp risk-off shift. The tide has turned today in Asian and European trading on reports that the Fed could halt hiking rates as soon as March, due to the rising global economic risks.

Nasdaq 100 Futures, 4-Hour Chart Analysis

The Nasdaq hit its lowest levels since April yesterday as the weakness in Apple (AAPL), which was caused primarily by the iPhone production cut and the string of analyst downgrades, infected the tech sector which has already been leading the way lower during the current bearish swing.

The benchmark bounced back towards its October low today in pre-market trading but its chart remains wounded, and as the majority of stocks established broader downtrends in the sector and globally, technical headwinds are now very strong, which add to the acute valuation worries.

2 Year US Yield, 4-Hour Chart Analysis

Interestingly, US Treasury yields, which have been drifting lower for over a week, have risen today despite the dovish reports on the Fed’s policies, as safe-haven flows partly reversed amid the global bounce in risk assets. That said, yields remain well below their recent multi-year highs, and that could stabilize the nervous markets somewhat, even if the quantitative tightening, which is likely the main reason behind the broad bearish shift continues in the US.

On a negative note, credit markets are starting to show signs of distress, with credit spreads widening in Europe and the US alike, and as we noted in October when credit markets remained stable, this is an important warning sign for bulls.

Dollar at Decision Point

EUR/USD, 4-Hour Chart Analysis

In economic news, the US Durable Goods report stole the show today, and it missed expectations across the board. The headline figure fell by -4.4%, way more than expected and the more reliable core measure came in at 0.1% missing the consensus estimate of 0.4%. New jobless claims came in higher-than-expected as well, and negative surprises put further pressure on the Dollar, although risk-assets barely budged.

The EUR/USD pair is now trading at a very important juncture following its recent bounce, with the 1.1440 level still being in the center of attention. A sustained move above that would confirm a new short-term uptrend, but since the long-term downtrend is still in no danger, odds still favor a re-test of the lows near 1.12 and any bullish bets should be considered as short-term trades.

AUD/USD, 4-Hour Chart Analysis

The Australian Dollar, which has been performing relatively well in recent weeks thanks to the stability in China and the relative strength of the Australian economy, pulled back amid the broad risk-off shift this week, breaking the rising short-term trendline in the process. Today, the currency bounced back hard due to the meager recovery in the price of oil and the rally in risk assets, and now it is on a make-or-break level compared to the USD.

The long-term trend remains bearish in the Aussie, and today’s setup might prove to be a great opportunity to enter that trend, with a relatively tight stop loss near the recent swing high. On the other hand, a less likely recovery above 0.73 could mean that the short-term trend will continue, with a possible target of 0.7450.

ChartBook

Major Stock Indices

S&P 500 Futures, 4-Hour Chart Analysis

Dow 30 Futures, 4-Hour Chart Analysis

VIX (US Volatility Index), 4-Hour Chart Analysis

DAX 30 Index CFD, 4-Hour Chart Analysis

FTSE 100 Index CFD, 4-Hour Chart Analysis

EuroStoxx50 Index CFD, 4-Hour Chart Analysis

Nikkei 225 Futures, 4-Hour Chart Analysis

Shanghai Composite Index CFD, 4-Hour Chart Analysis

EEM (Emerging Markets ETF), 4-Hour Chart Analysis

Forex

USD/JPY, 4-Hour Chart Analysis

GBP/USD, 4-Hour Chart Analysis

EUR/GBP, 4-Hour Chart Analysis

Commodities

WTI Crude Oil, 4-Hour Chart Analysis

Gold Futures, 4-Hour Chart Analysis

Copper Futures, 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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4.7 stars on average, based on 399 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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Altcoins

Stellar Price Analysis: XLM/USD Spared from Huge Punishing Downside; Stellar added to BitOasis Listings

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  • Stellar’s XLM has been listed on Dubai-based exchange, BitOasis, with zero transaction fees until 27th
  • XLM/USD price action caught by the lower support of a vital pennant pattern.

XLM/USD has been victim of excessive swings over the past going on two weeks now. This is in line with the general downside pressure that has hit the entire market. XLM/USD has lost some 35% since 12th November. The latest daily candlestick, at the time of writing, has been saved by a known serving area of demand.

During this period of heavy volatility, market volumes have spiked hugely. They were seen at their highest levels since the back-end of September when the price had a fast-short-term bull run to then see this as short-lived. It would go on and see these gains swiftly given back after running into some strong touted resistance.

Stellar Listed on BitOasis

BitOasis, a Dubai based cryptocurrency exchange, has added Stellar’s XLM token to its platform. They have detailed that XLM can now be purchase using AED, with no transaction fees, until 27th November.

It worth noting, back in July, Stellar obtained its Sharia certification, making it permissible to facilitate transactions within Islamic countries. XLM is available to trade for UAE, Saudi Arabia, Bahrain, Oman and also Kuwait citizens.

XLM/USD Fall

XLM/USD daily chart

The price has been moving within a pennant pattern structure, similarly to several of its peers. XLM/USD has been contained within since mid-July. It was moving within a consolidation and narrowing nature. Market bulls were then able to push for a breakout north, which came with a daily close on 4th November.

Upon this move out of the pennant structure, a small bull run was observed. XLM/USD had rallied some 20%, before buyers became exhausted. As a result, resistance was seen within the early $0.2800 region. This price area was also in proximity to the 61.8% Fibonacci, which had also seen a similar rejection between 23-24 September.

XLM/USD was then forced back down to retest the broken technical pattern structure. This failed to provide support to the falling force. The bears able to smash through, back down towards the original lower supporting trend line. This is seen tracking just sub-$0.2000 level. Further support was enforced by a demand zone, sitting just below.

Upside Targets

Thanks to the above-mentioned support coming to the rescue, it has provided some firmer ground for the bulls to build upon. The first challenge will be the 23.6% Fibonacci, in proximity to the upper trend line of the pennant. Both are tracking around the $0.2200 price area. The bulls have much to breakdown again.

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 61 rated postsKen has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.




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Altcoins

XRP Price Analysis: Deadly Daily Close Below Vital Support

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  • XRP/USD was moving within a pennant pattern for 10 weeks, but the bears have forced a daily closure below.
  • Eyes are on a retest of the mentioned structure; a failure to breach back above could be punishing.

XRP/USD has closed in the red firmly over the past two consecutive sessions. However, generally in comparison to its peers, it has held ground well. This being the case within the large bear market currently being observed for cryptocurrencies. The downside pressure seems to have finally taken its toll on XRP bulls. XRP/USD saw a daily candle closure below a key supporting trend line.

XRP/USD daily chart

Broken Pennant Pattern

Price action had been moving within a pennant pattern structure, since the 21st September. This came after the excessive upside movements that were seen. XRP/USD at the time had aggressively spiked up towards $0.8000, before quickly retracing back south. As a result of these big moves, the price went into consolidation mode, forming a pennant.

The bulls attempted a breakout to the upside form the pattern on 30th September and then again on 6th November. Rejection was served to those attempts. Market bears, on the other hand, worked their line of support on several occasions in October and November. No doubt that this consistent testing of this area caused an eventual break to the downside, as has been seen.

On the daily closure of 20th November, the price finished the session below the lower supporting trend line of the pennant. This leaves the odds stacked heavily in the bears favor. Eyes will now be on a potential retest of the structure above. Such a move, as playing to the textbook, could invite again some heavy selling pressure from the bears.

Support Levels

Looking to the downside, just underneath the mentioned technical pattern, there is a strong touted demand zone. Between the months of October and November, this area has proven to be of assistance. The last legs of this would be around the psychological $0.4000 mark down to $0.3850. A breakout to the downside from this could be extremely punishing.

The next major area of support, after the above-mentioned region, is seen deep south. There isn’t much in the way of support, until down at the $0.3000-0.2500 range. XRP/USD was last seen trading here on 18th September. An area that was clearly very attractive for buyers, seeing a large push to the upside from this territory.

Resistance Levels

In terms of upside resistance, as mentioned earlier, this should now be noted underneath the breached pennant pattern. A retest would likely to the $0.4800 come into force. Should odds be defied and the bulls earn a break above, the upper trend line of the pennant would likely be tested, tracking around $0.5300.

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 61 rated postsKen has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.




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