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Daily Analysis: Volatility Spikes to 5-Month High as Stocks Fall by 2%

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Tuesday Market Recap

Asset Current Value Daily Change
S&P 500 2822 -1.09%
DAX 13,197 -0.95%
WTI Crude Oil 63.92 -2.43%
GOLD 1342.00 -0.24%
Bitcoin 10,190 -9.71%
EUR/USD 1.2402 0.16%

It’s hard to overstate the extreme nature of the price action in stocks in recent months, as the low level of volatility, the lofty valuations, the lack of corrections, and the bullish sentiment put the current market in line with memorable speculative episodes.

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For now, the current correction could be nothing more than a blip along the way, and the major indices could catapult back to all-time highs in no time, but we wouldn’t BTFD here, especially from a long-term investment perspective.

The Volatility Index (VIX) jumped past 15, hitting the highest level since the August correction, and given the extent of capital committed to “short-volatility” strategies, we might be in for some serious fireworks, once the market hits a tipping point.

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VIX, 4-Hour Chart

Of course, tomorrow’s Fed-meeting is in the back of the minds of most investors, and that showed in the nervous conditions in forex markets, as focus shifted to equities. The sell-off in bonds, with now long-dated Treasuries also being dumped heavily, is one of the negative factors for stocks,

TLT (Long-Dated Treasury ETF), 4-Hour Chart

European stocks haven’t been enjoying euphoric buying like their US counterparts recently and Asian equities also lagged Wall Street’s momentum, and those markets already turned lower more than a week ago, as divergences intensified.

DAX, 4-Hour Chart Analysis

Fiat currencies were choppy with no clear direction in the majors, with the exception of the great British Pound, which gained ground on most of its major peers. The Dollar finished slightly weaker compared to the Yen and the Euro, despite the early strength in the Greenback.

Commodities were mostly lower thanks to the risk-off sentiment, with the recently rallying oil taking the biggest hit, with the overbought momentum readings also fueling the correction. Gold, on the other hand, held up well amid some notable safe-haven buying, and although further consolidation wouldn’t surprise us after the strong rally in precious metals, another leg higher towards $1400 could be ahead of us in the coming weeks.

WTI Crude Oil, 4-Hour Chart Analysis

Cryptocurrencies

The crypto segment resembles a sea of red following Facebook’s ICO advertisement ban and the regulatory troubles of Bitfinex with Tether, as the bearish technicals are still also weighing on the majors. Bitcoin dropped below $10,000, Ethereum got close to $1000, while the rest of the segment also got hit hard, with no notable bullish outlier, as correlations climbed higher again.

BTC/USD, 4-Hour Chart Analysis

The total market cap of the segment is nearing $500 billion again, with Bitcoin’s dominance hovering around the 33% level lately, while Ethereum’s market share increasing bit-by-bit. As the sector is nearing a likely cycle low, which might turn out to be very violent, mind you, long-term investors could focus on the already oversold coins to find entry points, but traders should still be aware of high-volatility swings.

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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: Correction Continues but Coins Remain Stable

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It’s been another mixed session for cryptocurrency investors as judging by only the price action, the segment suffered losses across the board, but comparing the current sell-off to the January plunge reveals that the majors are much more resilient this time around.

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The largest digital currencies are holding on to most of the gains of the recent weeks, and the price action near the crucial support zones is also encouraging. With all that said, the correction is not over yet, and further losses are still in the cards, but barring a substantial change in price action, the coins will likely continue the rally.

BTC/USD, 4-Hour Chart Analysis

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Bitcoin has been trading around the key $10,000 level all day long, and, so far, a clear break-down has been averted. The short-term momentum indicators are now in neutral territory regarding the most valuable coin, and that could mean that a bottom is close, and investors should already add to their holdings here. Further strong support is found between $9000 and $9200, while targets are ahead at $11,300, $13,000, and $14,250.

XMR/USDT, 4-Hour Chart Analysis

Correlation between the majors has increased during the sell-off, but there are still clear outperformers and laggards, adding to the bullish case. Monero remains among the strongest coins from a technical perspective, trading right at the lower boundary of the bullish consolidation pattern, with the $280 price level holding up for now. The coin faces strong resistance near $300 and $335, but we expect the uptrend to continue with the next target being ahead at $400, while further support is found at $240.

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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: Bulls Try to Fight Back after Ugly Overnight Session

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Following the steep late-day downturn on Wednesday, which followed the not-to-hawkish FED meeting minutes, Asian markets and US equity futures continued lower with a vengeance. The very active overnight trading is another sign of the regime change in traditional financial markets that we have been monitoring for the last two weeks, ever since the “Black Monday of 2018”.

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Dow Futures, 4-Hour Chart Analysis

EUR/USD Changing Behavior

The European session brought about an oversold bounce that stabilized markets from stocks to currencies. The EUR/USD pair that has started acting “normally” considering its relationship with US Treasury yields lately, is headed south once again, trading only 0.5% above its recent correction lows after clearly breaking below the rising trendline.

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EUR/USD, 4-Hour Chart Analysis

The bull-trap that we identified a few days ago was the start of the current leg lower, and if the regime change will be persistent, the most traded forex pair could be back to the role of the “risk-on/risk-off” indicator that has been the privilege of commodity currencies in the last couple of weeks.

USD/JPY, 4-Hour Chart Analysis

The Japanese Yen is showing notable strength after its overbought dip, and the primary safe-haven currency could be in for more gains, should the risk-selloff continue. The Yen also gained ground on the common European currency, following the dovish ECB meeting accounts and the misses in the German IFO business climate indicator and the British GDP, which all question the European growth-monetary tightening narrative.

Canadian Dollar in for a Wild Ride

USD/CAD, 4-Hour Chart Analysis

With the Canadian retail sales report and the US crude oil inventory data coming out soon, forex traders should expect sizeable moves in the recently weak currency, while the USD should also be very active during the US stock market session.

All eyes are on Treasury yields again, with the slight correction today helping the bounce in stocks and other risk assets. The Nasdaq could be the motor of a stronger rally on Wall Street, but we wouldn’t bet the house on that, as the short-term technical setup remains bearish, and a re-test of the correction lows is still the most likely scenario for the coming weeks.

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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 109 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

Crypto Update: Bitcoin Tests $10,000 amid Correction

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The altcoin-triggered correction continued in the segment overnight amid the renewed sell-off in global stocks, with a slight bounce in Asian trading and a subsequent dip after the European open. The major coins are all down by more than 5% since yesterday, but for now, the momentum of the move is not worrying, and most importantly the leadership of the rally is holding up relatively well.

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Bitcoin bounced off the key $10,000 level, the $200 support zone held in Litecoin, Monero is still in its consolidation pattern above $280, and only Dash showed deterioration since yesterday, but the long-term picture remains encouraging even in Dash’s case.

LTC/USD, 4-Hour Chart Analysis

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The above-mentioned levels in the technically strongest coins are not even the last line of defense for bulls, as the preceding strong rally left several key levels behind which could serve as the basis of the next leg higher.

Also, we expect the currently negatively diverging coins, led by Ethereum and Ripple, to start showing strength as the short-term momentum reaches oversold territory, and good entry points might be close both for traders and long-term investors.

BTC/USD, 4-Hour Chart Analysis

BTC touched the $10,000 support level, but for now, the technically more important $9000-$9200 zone is not in danger, and the short-term momentum indicators are already neutral thanks to the correction.

That said, more downside is likely in the coming days, but investors and traders should be looking for reversals to enter new positions, as we expect the uptrend to continue, with targets ahead at $11,300, $13,000 and $14,250.

Ethereum Provides a Glimmer of Hope

ETH/USD, 4-Hour Chart Analysis

Although bears are still in control regarding the short-term picture in the second largest coin, this morning ETH didn’t hit a significant new swing low, and that could be the first sign of relative strength, with the $845 support not far above the current price level, and the MACD indicator is already near oversold territory.

Despite the slightly positive sign, short-term traders should remain defensive concerning the weaker coins, while long-term investors should still accumulate the currencies on the dips.

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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4.7 stars on average, based on 109 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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