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Analysis

Is Volatility in Mean Reversion?

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Wall Street’s favorite measure of volatility has risen in six of the last seven days, signaling a possible calm before the storm for a bull market that continues to run hot.

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CBOE VIX Volatility Index

The Chicago Board Options Exchange (CBOE) Volatility Index edged up ever so slightly on Tuesday for its fourth consecutive gain and sixth advance of the last seven sessions. The index closed at a historically low level of 11.59. However, that was still the highest settlement in two months.

Vol, which expresses investor sentiment toward the S&P 500 Index, touched a session high of 12.61 on Tuesday. That would have been the highest reading since August.

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As the technical indicators suggest, the VIX is experiencing a steady increase in momentum. The Relative Strength Index (RSI) has eclipsed 60 while the MACD continues to push in positive territory.

Underpinning the latest increase in volatility has been incrementally smaller gains for U.S. equities. What’s more, the technical indicators suggest that a bearish reversal may be in the works, or at the very least, a notable correction.

The large-cap S&P 500 Index declined on Tuesday to close at 2,578.87. It was the index’s third drop of the past four days and lowest settlement in two weeks. Wall Street’s other benchmark indexes also finished in negative territory.

While volatility may be rising and stocks ebbing, this could be a healthy paradigm for Wall Street after a streak of unstoppable growth. The VIX’s current level gives it plenty of scope to mean revert back to more historically consistent levels.

Volatility is mean reverting, which means it has a strong historical tendency to get “back to average.” In the case of the VIX, average levels are around 20, but have been as low as 15 in the period following the financial crisis.

Pro-Growth Optimism Soothes Investors, but for How Much Longer?

As John Authers and Joanna S Kao have pointed out, President Donald Trump has brought stock markets their lowest volatility since the early 1960s. The calming of investor fear has been been largely driven by expectations of pro-growth policies under the new presidential regime. Chief among them is the promise of a major tax overhaul.

But as Hacked reported last week, the Trump tax plan is being met with resistance internally within the Republican party. In fact, there’s a strong possibility that we may have to wait until 2019 to see corporate tax cuts come to fruition.

Trump’s Treasury Secretary Steven Mnuchin has stated that the administration remains committed to ensuring the corporate tax rate does not exceed 20%. Trump campaigned on bringing the corporate rate down to a highly competitive 15%.

With mid-term elections looming and Republican infighting continuing to stall the legislative process, 2018 could be a difficult year for the president. Any sign that proposed policies have hit a snag will have a detrimental impact on the financial markets, which have largely run on hope.

Disclaimer: The writer owns bitcoin, Ethereum and other cryptocurrency. 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 348 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

Technical Update: NASDAQ and S&P 500 Approaching their Intermediate-Term Supports

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Technical Overview

  • After breaking their short-term supports (white trendlines in Figure 1, 2 & 3) on Friday (April 20), U.S. indices continued sliding into this week.
  • Given the lack of any major support levels within the range spanning from the low on April 2 to the high on April 18, U.S. indices moved sharply lower on Tuesday (April 24).

S&P 500

  • Next major resistance – the trendline connecting the January & March highs (orange trendline in Figure 1, currently at 2,736).
  • Next major support – the intermediate-term support (ITS – violet trendline, currently at 2,605).

Figure 1. S&P 500 Daily

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NASDAQ

  • NASDAQ’s intermediate-term support (ITS) is of extreme importance as it overlaps with the neckline of a large H&S pattern (tops – red ellipses in Figure 2). A break below the ITS activates a target of 6,000 (vertical yellow trendline). Note, the pattern is tentative until the neckline is broken.
  • Next major resistance – the trendline connecting the March & April highs (orange trendline, currently at 7,265).
  • Next major support – the intermediate-term support (violet trendline, currently at 6,885)

Figure 2. NASDAQ Daily Chart

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DJIA

  • Today’s decline intensified after the index broke back below its 2018 Resistance (red trendline Figure 3).
  • Next major resistance – 2018 Resistance is expected to continue serving as resistance after today’s move below it
  • Next major support – Feb & April lows at roughly 23,350 (green horizontal trendline).

 Figure 3. Dow Jones Industrial Average Daily Chart

Implications

  • Breaks of the intermediate-term supports for both S&P 500 and NASDAQ will carry significant bearish implications, with downside targets of at least 10 to 15%.
  • NASDAQ’s monthly chart depicts why a potential break of the ITS may lead to declines sharper than the ones observed in February and mid-March. Since June 2016, the index has marched higher, in an almost vertical fashion. Upward movement implied by the steep slope of the intermediate-term support is unsustainable in the very long run (violet trendline in Figure 4). Eventually, once the ITS is broken, the index is expected to retest its long-term support (dark blue trendline).

Figure 4. NASDAQ Monthly Chart

Outlook

  • Neutral with a bearish bias. While price action points to a likely retest and potential break of the intermediate term supports, outlook is not outright bearish until confirmation is received.
  • Short- and long-term bearish if S&P 500 and NASDAQ break their respective intermediate-term supports.
  • S&P 500 and NASDAQ need to hold their intermediate-term supports and break above the orange trendlines for outlook to shift to bullish, at least in the short-term.

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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Analysis

ICON versus TenX: What You Should Know

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There are so many cryptocurrencies out there.  As the flow of ICOs continues, more tokens are added almost daily.  It may be some consolation that more the 80% of these tokens use the Ethereum platform and that means their value is connected to the mothership.  It may also help to remember that there are plenty of crypto exchanges that will unload your coin once the ICO is complete.

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That’s fine, but this takes time not to mention the fees that get tacked on along the way.  And if there has been a proliferation of currencies, now about every Fortune 500 company wants their own blockchain.  Instead of putting all of our efforts on figuring out who has the smartest contracts or which is the best crypto, maybe we should look for someone to connect all these dots.  My guess is this notion will be a big feature of Gen IV crypto technology.

Here Are Two Prospects

Of the most successful ICOs in 2017, two are really eye catching for their vision of connecting cryptocurrencies and networks.

TenX claims they will make all cryptocurrencies spendable through a debit card ranked. That vision made them $64 million during their token sale, enough for the tenth spot on the list of largest intakes. 

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The ICON project will be building one of the largest decentralized networks in the world. The total raised of $43 million was good enough for the #13 ranking of top 2017 ICOs. Before going deeper, let’s first take a look at TenX.

TenX Could Be a 10

TenX has an audacious plan to connect digital currencies and in the process disrupt one of the biggest financial monopolies in existence.  They are out to create a massive payment channel dubbed COMIT which stands for Cryptographically-secure Off-chain Multi-asset Instant Transmission network.  How does their white paper describe COMIT? It looks just like the Internet.

In simple terms, TenX is out to get a banking license, then use their own debit card running on the COMIT network to challenge the MasterCard, Visa, American Express monopoly.  The beauty of TenX is the ability to use any coin or token to buy goods and services with one card.

Even if a merchant doesn’t happen to accept crypto, no problem, TenX converts the crypto to the fiat currency.

This is the future of cryptocurrencies.  As bitcoin leads the way with some 10,000 mostly online merchants acceptance of other cryptos will follow. However, the amount of time involved in winning the game will be considerable. We are talking about a startup company attempting to capitalize on mass adoption of crypto as a medium of exchange.  So far fewer than 1% of all transactions fit that category.

Around the year 2000, online merchants accounted for 1% of all retail sales.  Some 18 years later, it amounts to just under 10%.

ICON: Connecting Networks

For those who really enjoy digging into the technical detail, here is how their whitepaper describes the project.

With ICON, numbers of blockchains are connected around Nexus via Portal. Nexus is a loopchainbased blockchain. Nexus is a Multi-Channel blockchain comprised of Light Client of respective blockchains.

Tokens called ICX (ICON Exchange) are embedded in Nexus and the interconnected blockchains can use ICX to transfer values. As a blockchain itself, Nexus can be connected to another Nexus, allowing different blockchains with different governance structures to execute transactions and exchange values.

For us simpler folks, think of the earliest days of the Internet.  Over 30 years ago, the Internet consisted of a bazillion independent networks throughout the world.  Then somebody came up with TCP/IP and presto, the modern Internet was born.

Use cases for ICX go beyond connecting currencies – they connect blockchains and that means doing something akin to TCP/IP.  So we are talking about things like connecting separate health systems and much more.

Just like TenX, the question for ICON is how long their plan will take and will $43 million be enough to deliver the bacon. However, for those investors looking for a Gen IV play, ICON is a candidate.  

Like about every other currency, ICX came down hard from its $9.95 price on January 30 to a $1.89 low earlier this month. Since then it has bounced back and is hovering around $4.30 at the time of this writing.  Raising $43 million may not be enough to get ICON to the promised land but it shows that a lot of serious investors did their research and bought the promise.

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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4.4 stars on average, based on 62 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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Analysis

Crypto Update: Ethereum Tops $700 as Short-Term Sell Signals Pop Up

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The major cryptocurrencies are having another strong session, with all of the top 10 coins sporting gains, adding more than 5% on average since yesterday. The largest digital currencies are trading in clear short-term uptrends, with the broad declining trendlines also being broken in most cases.

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That said, the short-term momentum indicators are overbought with regards to altcoins, and now several majors triggered short-term sell signals following the first signal by IOTA yesterday. While this doesn’t mean that traders should exit all short-term positions here, taking some profits and/or setting tighter stop losses is advised, as there will likely be opportunities with much better risk/reward profiles to re-enter the market.

BTC/USD, 4-Hour Chart Analysis

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Bitcoin finally topped the $9000-$9200 resistance zone after a period of relative weakness, further boosting the already positive overall picture. The momentum of the move is still not stellar, but the coin is still not severely overbought, and although a deeper pullback is still likely soon and short-term traders shouldn’t open new positions here, a test of the $10,000 level is still possible in the coming days. The long-term setup is clearly bullish, and investors could still add to their holdings during the short-term pullbacks, with further support found at $8400.

ETH/USD, 4-Hour Chart Analysis

Ethereum continued to rally, despite the already overbought reading, and now the coin is severely overbought, and a correction is very likely in the coming days, so short-term traders should exit their positions or use tight stop losses here. We expect the rally to continue after a correction, and long-term investors should hold on to their coins. Resistance zones are ahead near $735 and $780, while primary support is between $625 and $645.

Altcoins Overbought but Uptrend Intact

XMR/USD, 4-Hour Chart Analysis

While correlations are getting lower and lower among the major coins, which is a bullish sign, most of them are already overbought from a short-term perspective. Although further gains are still possible, chasing those coins higher here is not a good strategy, even as the long-term setups remain encouraging.

Litecoin, ETC, and NEO are not severely overbought yet, while Ripple, Stellar, and Cardano are already in short-term corrections clearing the overbought readings, but traders should be cautious with Dash, EOS, Monero, and IOTA as they are ripe for a move lower.

Featured image from Shutterstock

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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4.5 stars on average, based on 231 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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