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Much Debate

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Hi Everyone,

There’s been much debate lately about what effect of a stock sell-off might have on the crypto market. Well, today we’re a little bit smarter.

The stocks and bonds are right in the middle of a vicious sell-off and prices suggest that it has spilled over into the crypto market.

Here we can see the Nasdaq 100 in blue and bitcoin in orange. Stocks, especially in the tech sector have been having a very red October and yesterday afternoon cryptos followed suit.

As we’ve been saying, cryptoassets are classed as high risk. In the traditional markets, stocks are considered high-risk. So when a sell-off happens in the tech sector, even the biggest crypto enthusiasts take note.

This is why it pays to keep a diversified portfolio which is more than just cryptos and tech stocks. Gold, for example, did very well yesterday. As a safe haven asset, it tends to trade opposite the stocks and that’s exactly what happened here.

@MatiGreenspan
eToro, Senior Market Analyst

Please note that there will be no daily update tomorrow as I’ll be travelling. We’ll resume on Monday the October 15th.

Today’s Highlights

  • The Sell-off
  • Over the weekend
  • The Crypto Debate

Please note: All data, figures & graphs are valid as of October 11th. All trading carries risk. Only risk capital you can afford to lose.

Traditional Markets

Quite a dramatic headline landed in my inbox this morning from the Financial Times.

(Please note that the Financial Times is a paid subscription magazine. We do have free subscriptions for our high equity clients, feel free to discuss with your account manager.)

At this point, the S&P500 has lost almost all of the gains it has accumulated this year.

The question of course now becomes, where do we go from here?

Is it time to buy the dip or will the sell off continue?

Well, the answer is less important than your portfolio makeup. If you’re heavily invested in the tech stocks, it might be a good chance anyway to limit exposure and diversify into other assets.

If you’re looking to gain more exposure to stocks, perhaps be selective in the stocks you choose and consider using a stop loss.

For the day traders out there who like a bit of risk and volatility, now is a great time to make a few trades.

Upcoming News

Today we’ll get some critical data from the USA that could impact the markets a fair bit. The monthly CPI inflation data to be released an hour before the opening bell will be watched not only by traders and analysts but by the Federal Reserve.

Despite the fact that Donald Trump thinks the Fed has “gone crazy” by raising interest rates, if the inflation data starts showing signs of an increase, they may have no choice.

Over in Europe, we’ve got two things to watch out over the weekend…

1. Monday is the deadline for Italy to propose their budget to the European Union. We’ve discussed this several times and let’s hope for the best.

2. Elections in Bavaria might not normally be very interesting but the polls here indicate that the results may have a wider impact on the Euro.

This graph (from the print edition of the Financial Times) shows just how much support Merkel’s allies, the CSU, have lost lately.

Certainly if these polls these polls are reflected in the final results , it will be bad news for the Prime Minister and will weaken her coalition. Given the broader market sell-off, the thing we really need to look out for is uncertainty.

Crypto Debate

A great debate is currently playing out on Twitter over the future of cryptoassets. The heavy hitters involved are none other than Dr. Doom, the man who is widely credited for predicting the 2008 financial crisis, Nouriel Roubini and the creator of the Ethereum network Vitalik Buterin.

Roubini has recently given a controversial testimony lashing out at the entire crypto industry. In one tweet he even called Bitcoin worse than North Korea.

Dr. Roubini has also been lashing out at Vitalik himself over the last few weeks calling him the “benevolent dictator for life.”

Well, Vitalik has recently begun to respond, as he does with a series of tweets. Yet, it seems that Roubini has been less than responsive. The one direct response that I did see contained facts that were quite obviously inaccurate.

Ethereum was created on July 30th, 2015!!!

There’s no possible way that anybody was thinking about switching it to POS in 2013.

Jaime Dimon famously called bitcoin a fraud, but he did recant. The president of the Bank of International settlements called it a ponzi scheme, but he has recanted too. It seems that Roubini is increasingly standing alone in his anti-crypto campaigning efforts.

This content is provided for information and educational purposes only and should not be considered to be investment advice or recommendation.

The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro.

Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose.

Cryptocurrencies can widely fluctuate in prices and are not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework.

Best regards,
Mati Greenspan
Senior Market Analyst

Connect with me on….

eToro: @MatiGreenspan | Twitter: @MatiGreenspan | LinkedIn: MatiGreenspan | Facebook:MatiGreenspan

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

5 Things To Watch Next Week + Chartbook

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2800 Level in Focus in the S&P 500

S&P 500 Futures, 4-Hour Chart Analysis

The trendline breaks that we pointed out last week, which were triggered by the jump in Treasury yields led to an unexpectedly volatile selloff in US markets, while dragging lower stocks globally too. Now, as the technicals shifted bearish in almost all major markets, at least from a short-term standpoint, a more defensive approach is advised even for short-term traders, while we were already defensive with regards to the long-term outlook for US stocks, given the valuation extremes.

Next week, Friday’s oversold bounce could continue in the US, but stiff resistance is ahead not far from the current price levels, in the 2800-2810 area in the S&P 500 the most-watched index. An advance to 2850 would provide a great short-term selling opportunity, but as small-caps, which led the market lower recently remain weak, a reversal off the 2800 level is also in the cards. In any case, a new swing low is likely in the coming weeks, with a test of the 2675-2700 area.

Another Week of Heavy Trading Expected in Treasuries

US 10-Year Treasury Yield, 4-Hour Chart Analysis

The week will start with a crucial economic release in the US, and the Retail Sales report will likely cause further volatile trading in Treasuries and stocks alike. After pulling towards the end of the week, Treasury yields could head higher again, especially if a strong report revives inflation and rate hike fears.

The meeting minutes of the recent Fed meeting will also be released on Wednesday, and although we don’t expect huge surprises, the Treasury market will likely have another volatile session. The Dollar, which has been drifting lower against its major peers last week, will also be in the center of attention, since despite the correction, the broader trend is bullish, and the reserve currency could be ready for another leg higher.

Keep an Eye on the VIX!

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

We have been following the break-out in the Volatility Index (VIX) in the past couple of weeks and despite the bounce in stocks, the measure remains above the line-in-the-sand 20 level. While the February collapse of the short-VIX trade is unlikely to happen again, there is a good chance that in the coming weeks we will see outsized moves in stocks.

A persistently high VIX would be consistent with the deterioration in market internals that we observed lately, and we don’t expect a quick decline towards the 10 level, as it was the case after every correction in 2017 before the February crash.

Emerging Markets and Europe Trading at Multi-Year Lows

DAX 30 Index CFD, 4-Hour Chart Analysis

There were clear positive catalysts in the second half of the week for emerging markets, with the much wider than expected Chinese Trade Balance and Turkey’s surprising step to release Pastor Brunson helping to ease trade war fears and the pressure on the Turkish Lira respectively. That said, the fresh standoff between Donald Trump and Saudi Arabia could trigger another wave of selling in the assets of the most vulnerable countries, erasing the Friday bounce.

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

As we expected emerging market equities underperformed currencies during this selloff, and as measured by the EEM ETF, the segment hit new lows together with the main European benchmarks. This widespread weakness is an alarming sign for bulls, and although a larger bounce could follow from these oversold levels, there is nothing bullish in the recent price action of the lagging assets.

Earnings Season Heating Up

After the record-breaking second quarter the 3Q earnings are starting to come in, and although analysts have been steadily reducing their estimates across the board, we don’t expect huge negative surprises in the US, as economic momentum remained strong despite slowing global growth. With that in mind, earnings could help in stabilizing the market after last week’s rout, even if a broader trend change is likely underway.

Among the most-awaited reports, we find Johnson & Johnson (JNJ), Bank of America (BAC), Goldman Sachs (GS), Morgan Stanley (MS), Netflix (NFLX), IBM (IBM), and Procter & Gamble (PG), with Tuesday being the busiest reporting day.

ChartBook

Major Stock Indices

Nasdaq 100 Futures, 4-Hour Chart Analysis

Dow 30 Futures, 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

Forex

EUR/USD, 4-Hour Chart Analysis

USD/JPY, 4-Hour Chart Analysis

GBP/USD, 4-Hour Chart Analysis

EUR/GBP, 4-Hour Chart Analysis

AUD/USD, 4-Hour Chart Analysis

Commodities

WTI Crude Oil, 4-Hour Chart Analysis

Gold Futures, 4-Hour Chart Analysis

Copper Futures, 4-Hour Chart Analysis

Featured image from 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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4.6 stars on average, based on 374 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

Nasdaq Leads Dead-Cat-Bounce Before the Weekend

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US stocks finished broadly higher yesterday, with the most oversold Nasdaq leading the way higher, and with all of the main sectors finishing in the green. The market-leading tech giants led the charge, but on a negative note, small-caps underperformed again, and in general, charts are still wounded across the board.

Nasdaq 100 Futures, 4-Hour Chart Analysis

We have been expecting the week to end on a positive note following the wash-out selloff on Thursday, as although outright crashes originate in oversold conditions, but with yields pulling back, and with credit markets being relatively calm, the major dislocations that fuel a crash are not (yet) present. That said, valuations are still extreme in the US, and all rallies should be considered opportunities to sell in the current market environment.

10-Year US Treasury Yield, 4-Hour Chart Analysis

Treasuries had a relatively calm session, with yields finishing slightly higher thanks to the improving sentiment. The yield curve remained well below the levels that triggered the steep selloff in stocks in the first place, and given the week’s tame inflation report, a less hectic period for bonds might be ahead.

High yield bonds also finished notably higher, although they are close to their February lows, meaning that while credit markets are relatively quiet, the lower quality issues are underperforming equities, which is usually a cautionary sign.

Dollar Bounces Off Weekly Low

EUR/USD, 4-Hour Chart Analysis

The Dollar which has been drifting lower as stocks plunged bounced back together with equities today, gaining ground against most of its major peers. The EUR/USD pair turned lower off the 1.16 level after the correction, and for now, the declining trend is clearly intact, and a test of the August lows seems likely.

The Dollar’s recent weakness helped the currencies of the most vulnerable emerging markets, but the funding crisis is likely here to stay. Equities are sinking lower and lower globally, following in the footsteps of China, and and we expect the Yen and Dollar to outperform, should the trend continue in the coming months.

WTI Crude Oil Futures, 4-Hour Chart Analysis

Commodities had another mixed day, with all eyes still on gold. The precious metal saw strong safe-haven demand amid the plunge in stocks, and on Friday, it pulled back somewhat due to the improving sentiment. While gold remained above the key $1220 resistance, copper and crude oil bounced higher despite the rally in the Dollar.

The WTI Crude contract remained below the previously dominant rising short-term trendline and the strong support/resistance zone near the $72.50 per barrel level, and it looks ready to test the $69.50 support as well.

Featured image from 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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4.6 stars on average, based on 374 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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Market Overview

Market Update: Tech Stocks Lead Wall Street from the Abyss

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U.S. stocks rose on Friday, with the S&P 500 snapping its longest losing streak in nearly two years on the back of technology and communications companies.  The cryptocurrency market was little changed after Thursday’s sharp retreat as bitcoin found stability near $6,300.

Stocks Mount Modest Comeback

All of Wall Street’s major indexes booked gains in the final session of the week. The large-cap S&P 500 Index advanced 1.4% to 2,767.13, with information technology and communications services leading the way higher. Tech shares spiked 3.2% on average.

The Dow Jones Industrial Average climbed 287.16 points, or 1.2%, to 25,339.99. The blue-chip index plunged more than 1,300 points on Wednesday and Thursday combined.

The Nasdaq Composite Index outperformed its peers on Friday, gaining 2.3% to 7,496.89.

A measure of implied volatility known as the CBOE VIX pivoted sharply lower on Friday. The so-called “fear index” settled down 14.7% at 21.31 after hitting a session high of 26.80. VIX spiked by a combined 56.3% in the last two sessions en route to fresh six-month highs.

Earnings Season Underway

Corporate earnings season began in earnest Friday with a trio of Wall Street banks reporting third-quarter results. JPMorgan Chase & Co (JPM), Wells Fargo & Co (WFC) and Citigroup Inc. (C) all reported rising profits.

Wall Street is coming off back-to-back quarters of stellar earnings growth thanks to a synchronized global recovery and corporate tax cuts at home. It remains to be seen whether U.S. firms can withstand the latest turmoil engulfing emerging markets like Turkey, South Africa and Argentina. The International Monetary Fund (IMF) earlier this week downgraded it outlook on global growth, citing trade risks as the biggest barrier moving forward.

U.S. companies are projected to report a blended earnings growth rate of 19.1% for Q3 2018, according to FactSet, a financial research firm. If that estimate holds, it would mark the third highest earnings appreciation since Q1 2011.

Cryptocurrency Market Treads Water

Cryptocurrencies stemmed further declines on Friday, with the total market cap holding above $200 billion.  XRP was one of the fastest to recover from Thursday’s rapid selloff, gaining 16% through the Asian session. By the afternoon, the XRP price was up a mere 3% over 24 hours to trade at $0.423, according to CoinMarketCap.

Bitcoin posted a daily high of $6,353.40 on Bitfinex after falling to the low $6,200 region during the prior session. The leading digital currency currently sits just north of $6,300 on trade volumes of roughly $4.2 billion.

The market-wide selloff on Thursday appears to have been driven by technical trading and the loss of declining appetite for digital assets following Bitfinex’s sudden freeze on fiat deposits earlier this week. The exchange, which is the world’s fourth largest based on adjusted volume, saw its daily turnover drop by nearly 50%. This comes despite a noticeable uptick in daily trade volumes across the entire market.

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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4.6 stars on average, based on 643 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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