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Analysis

Pre Market: Short-Covering Bounce Continues but Markets Look Vulnerable

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Stocks continued to drift higher gradually but relentlessly, as sentiment is still improving, quarterly earnings have been a tad better than expected so far, while the oversold momentum readings that developed in March are now erased.

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S&P 500 Futures, 4-Hour Chart Analysis

While we maintained a slight bullish bias amid the choppy consolidation, and the major US indices left the triangle patterns on the upside, the rally is far from being convincing, and we think that it’s time to look for entry points to trade the short side.

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Shanghai Composite, 4-Hour Chart Analysis

Trading volumes have been progressively declining as stocks rose, the momentum of the advance has also been suspicious, and Asian and European markets are still in much worse shape than their US peers, despite today’s early rally in most markets, with the Shanghai Composite actually breaching its February low just today, as we warned earlier this week.

As the easing of trade war fears was one of the main catalysts of the rally, the continued back-and-forth announcements between China and the US could rattle the weak trend, even as the escalation of the Syrian situation halted, for now. With the technicals now favoring a downswing, the market could be more vulnerable to negative news, so bulls should keep their stops tight here.

Another Calm day for Currencies as Commodities Jump

Gold Futures, 4-Hour Chart Analysis

Gold is showing surprising strength today, as although the Dollar is weak, safe-haven flows are still negative. Despite that, the precious metal is closing in on its crucial resistance zone near $1360 again, and given the lengthy consolidation phase, a breakout could setup a huge momentum move, especially if the current risk rally fades.

The oil rally also resumed after a brief correction, with the WTI contract reaching the $68 per barrel level for the first time since 2014 before today’s US inventory data. Although commodity currencies are stable, given the bullish backdrop, the performance of the Aussie and the Canadian Dollar is rather disappointing, and that also adds to our suspicions regarding the rally in equities.

The Great British Pound is the most active major fiat currency, but now the Pound is dropping following the miss in both producer and consumer prices, which cooled down rate hike expectations further together with yesterday’s lower than expected wage growth figure.

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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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4.6 stars on average, based on 255 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

Falling Crypto Markets Signal Buying Opportunity

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After the spectacular performance of crypto prices in April, any person with a dose of common sense would have expected a big pull back this month.  By big pull back we are taking a page from the playbook of technical analysis so a 50% retrenchment would not be unusual.

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Until just recently, May was shaping up as a calm consolidation of prices.  With the exception of Ethereum, most of the major market caps pulled back around 10-12% in relatively calm trading.  Crypto skeptics will point out how bitcoin and others have underperformed stock indices like the Nasdaq Composite that is heading for a positive return of over 4%. But there there are more important signs taking place.

This week calm has turned into a sizable selling wave with bitcoin, bitcoin cash and Ethereum falling 11%, 23% and 24% respectively.  So suddenly, what’s causing this to happen?

According to a headline in CCN:

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The recent correction of the cryptocurrency market and the short-term decline in the price of bitcoin, Ethereum, and other major cryptocurrencies and tokens can be mainly attributed to three major factors: Bitfinex taxation policy, scandal of South Korea’s two largest cryptocurrency exchanges UPbit and Bithumb, and the initial sell-off of the Mt. Gox trustee’s bitcoin funds.

Accepting each of these factors in the face of the dramatic price declines should warm the hearts of investors.  Here is why it is a time for joy starting with the Bitfinex situation.

Bitfinex is the biggest bitcoin-to-USD exchange. Headquartered in the crypto tax haven of BVI, Bitfinex has requested personal information about it customers such as tax ID and social security numbers.  BVI is the home not only of Bitfinex but the chosen domicile of many ICOs.

The obvious source of this change in reporting policy can be drawn to U.S. pressure on BVI and the effect is clear.  Those investors who chose to resist the Bitfinex request sold their crypto.

We won’t go into all of the details of UPbit and Bithumb only to point out that this created a selling panic similar to Bitfinex.  Investors sell their crypto for good and obvious reasons but the reasons have little to do with the role of blockchain technology in the global economy.  In other words, when investment decisions are driven by fear, that spells opportunity nearly every time.

How Much Is the Downside?

Each of the factors mentioned is likely to be forgotten before any of us can imagine. Disaffected investors will simply find other exchanges to transact their business. This is not to condone those who choose to hide their identity.  It is simply a fact that there will will always be a location somewhere in the world that has loose tax reporting policies.

Knowing this means we need not fall into panic mode but actually welcome the crypto price correction and get ready to add to our portfolio.  The logical question that comes up is which name will produce the highest upside. The answer is that there is 30%-50% upside on average so choose your favorite flavor.

One thing worth remembering:  big cap names like bitcoin and Ethereun underperformed most altcoins during April, but are now showing the better downside relative performance.

So, in the next up leg, more risk orientated crypto investors will most likely get more action from names like EOS and Zcash to mention just two of many options. The market is displaying signs of rational analysis of risk and that is the sign of a maturing market.  In the long term scheme this is great news.

So answering the question, how much downside remains, is always an impossible task and can be a distraction.  Prices are back in a value range and that is the important conclusion.

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 75 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

Pre-Market: Turkish Lira Spooks Markets, as Dollar Still in Focus

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Stock markets are broadly lower today, as yesterday’s risk-off shift continues to dominate trading, with the Turkish currency woes, the Italian political standoff, and the weaker than expected European PMIs providing ample ammunition to bears.

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S&P 500 Futures, 4-Hour Chart Analysis

While the post-crash period since early February had its ups-and-downs, the best way to describe it is still a simple consolidation. In the US, trading has been taking place mostly in the range of only two sessions in early February, and the S&P 500 is still stuck in the middle of that range.

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Forex markets are in turmoil, as Dollar-centered trading continues across the board, and the hunting season for vulnerable emerging market currencies is still on. The recent strength in the reserve currency together with the rising yields sparked an exodus from more risky assets across the globe and with the Euro hitting another 6-month low today, the pressure will likely persist. Investors await tonight’s Fed meeting minutes which could make a huge impact on the Dollar and equities, especially if the central bank cools down rate hike expectations after the strong Dollar rally.

EUR/USD, 4-Hour Chart Analysis

First, it was Argentina, now it’s Turkey that’s in the center of attention, as the country plagued by a huge private Dollar debt load end rampant inflation is highly sensitive to rising rates and a weaker currency.

USD/TRY (Turkish Lira), Daily Chart Analysis

More experienced investors could have a strong feeling of déjà vu, as the Turkish leadership is blaming a concentrated attack against the country, while the market is waiting for the inevitable central bank intervention in the form of an emergency rate hike. For now, there is still hope that the storm will pass, but should an outright currency crisis break-out, rate hikes won’t be enough, and even capital controls will only provide a temporary solution, and a hard landing for the economy will be almost guaranteed.

Europe Also Down as Oil Pulls Back

DAX Index, 4-Hour Chart Analysis

European stocks which have been lifted by the falling Euro in recent weeks fell to two-week lows today, after the bearish PMI releases and the lower than expected British inflation figures. While the string of negative economic surprises continued, emerging market woes were largely ignored by investors so far, and the rising short-term trends are still mostly intact throughout the Old Continent.

Commodities are lower mixed amid the large currency moves, as the Dollar’s strength weighs on the whole asset class. Gold is still stuck below $1300 despite its recent resilience, while Oil is trading just off its highs, even as the OPEC is reportedly contemplating a supply increase following the “normalization” of oil prices. The cartel which, led by Saudi Arabia has openly been seeking higher prices

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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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4.6 stars on average, based on 255 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: Coins Lose Ground as Range Trading Continues

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While the weekend rally got bulls hope up that the consolidation phase might have ended, the technical setup hasn’t changed much in the segment, and today all of the major coins are lower again. The losses, which range from 2-5%, are not significant from a long-term standpoint, and most of the top coins are still clearly above the crucial support levels that mark the lower boundaries of the short-term trading ranges.

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With that in mind, traders still shouldn’t change their neutral stance, as there is no clear momentum present that would justify new positions here. Bitcoin continues to slightly outperform most altcoins today, but the divergence is not significant from a technical standpoint. Trading volumes continue to be well below the levels of the recent weeks, and that reinforces the bullish consolidation scenario.

BTC/USD, 4-Hour Chart Analysis

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BTC drifted back below the key $8400-$8600 zone, and it remains stuck the lower boundary of the range today, despite its slight relative strength. As the short-term MACD indicator is neutral, and our trend model is also on a neutral signal, further choppy trading is likely ahead.  Short-term support is found near the intraday low, at $8150, with a stronger zone between $7650-$7800, with further resistance ahead between $9000 and $9200, $10,000, and $10,500.

ETH/USD, 4-Hour Chart Analysis

Ethereum is trading right at the center of the short-term range, as the coin gave back most of its weekend gains, while losing its relative strength in the process as well. The coin remains on a neutral short-term trend signal similarly to the broader market, with the price action still being consistent with an orderly correction. Resistance is ahead between $735 and $780, at $845 and $900, while support is found between $625 and $645 and between $555 and $575.

Tron Still Outperforms as Correlations Remain High

TRX/USD, 4-Hour Chart Analysis

Tron made the most progress among the op coins since bottoming out after the correction, and the coin remains bullish from a short-term perspective despite the current pullback. The $0.075 support/resistance level is in the center of attention, while the late-April high at $0.010 is the next target for the move. As the broader market remains in a corrective phase, but the coin is one of the prime candidates to hit a new high in the coming weeks.

Dash, Monero, Ripple, and Litecoin are still weaker than segment average, while the recently lagging IOTA held the key $1.7 level. For now, there is still no sign of a developing robust leadership, as EOS failed to regain its bullish momentum, and no major joined Tron in the rally.

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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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4.6 stars on average, based on 255 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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