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Analysis

Stocks and Cryptocurrencies Under Pressure as Bond Yields Push Higher

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Weekly Recap

Asset Current Value Weekly Change
S&P 500 2423 0.03%
DAX 12415 0.05%
WTI Crude Oil 44.28 -4.10%
GOLD 1212.00 -2.48%
Bitcoin 2520 4.23%
EUR/USD 1.1400 -0.08%

Stock Weakness Continues as Yields Rise Across the Board

European stocks and the NASDAQ led the markets lower for the second week in a row, as the European Central Bank’s alleged shift towards monetary tightening continued to influence global trends. Yields were rallying hard throughout the developed world, and with the returning strength of the Europe, it delivered a double blow to European equities. Friday’s session was a much-welcomed relief for bulls, as the good, but not too good US employment report kept up hopes of further moderate economic growth alongside a cautious Federal Reserve.

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EUR/USD, 4-hour Chart Analysis

That said, the DAX, the Euro Stoxx 50 and the NASDAQ are all looking wounded short-term, although the S&P 500 is holding up well thanks to the financial sector which is being helped by rising yields. The deadline of the Qatar ultimatum could have been a defining event of the week, but with the help of the US and other Western powers, the Saudi-led alliance backed off a little and let the country pass with its less than satisfying response to the 13 demands. While the diplomatic blockade is set to continue against the Gulf-state, further escalation is averted, for now.

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Oil on Rollercoaster Ride while Gold Slammed

Crude oil staged a relief rally thanks to the peaceful “resolution”, and it was also helped by last week’s somewhat encouraging US supply report, but the hopes regarding the latter was crashed this Friday, as output surged once again, as the shale industry is still showing resilience to low prices and rising yields. The de-escalation hurt gold, and the Yen as well, despite the Dollar weakness, as the ECB’s hawkish rhetoric convinced investors that, in fact, we are in a global monetary tightening cycle.

WTI Crude Oil 4-Hour Chart Analysis

And as it is the new norm now in the algo-led financial markets, traders saw yet another flash-crash on Friday (what is it with Friday’s anyway??), this time in silver. The precious metal was crushed in a matter of seconds, and although it recovered initially, the market remained nervous and shaky throughout the session. Both gold and silver finished the week near their lows, and although the long-term prospects are still looking good, the regular “fat finger” declines will likely keep short-term traders away for a while.

Silver, 10-Min Chart Analysis

Cryptocurrencies Decline after Quiet Week

Small-cap cryptos are taking a beating since Friday morning, with double-digit losses across the board. The continued influx of ICOs draws capital away from the already public coins for sure, while the continued correction in Bitcoin and Ethereum also weighs on the segment. The majors are still well above the correction lows, despite the deterioration this weekend, while the two most active currencies of the week, Litecoin and Dash are correcting as well. The main reason for the move lower is still the previous stellar rally, and the euphoric sentiment that needs to be reset to have a good base for the next rising cycle.

Ethereum, 4-Hour Chart Analysis

Economic Numbers

The slight uptick in US economic numbers was enough to fuel the rally in yields, as more weakness would definitely be needed in order to change the mind of the Fed regarding the rate hikes this year. The ISM Manufacturing and Services PMIs plus the Non-Farm Payrolls number all beat the consensus estimates, although Factory Orders disappointed. Europe, and especially the UK, didn’t impress, while the Canadian economy continues to be the bright spot, with employment, housing, and manufacturing all providing bullish numbers.

Technical Corner

S&P 500, 4-hour Chart Analysis

The most important US index has been showing relative strength compared to the NASDAQ this week and it remains well inside its rising long-term trend. The benchmark is hovering around the 2420 value area since the end of May, and it hasn’t left a 2% range for almost two months. The picture would only change with a break below 2400, and the next week could be crucial for the market, as the bearish tilt of the NASDAQ takes on the strength of the S&P and the financial sector.

Key Economic Releases of the Week

Day Country Release Actual Expected Previous
Monday JAPAN Tankan Manufactring Index 17 15 12
Monday JAPAN Tankan Services Index 23 24 20
Monday CHINA Caixin Manufacturing PMI 50.4 49.9 49.6
Monday SPAIN Manufacturing PMI 54.7 55.6 55.4
Monday UK Manufacturing PMI 54.3 56.4 56.7
Monday US ISM Manufacturing PMI 57.8 55 54.9
Monday US Vehicle Sales 16.7 mill
Tuesday AUSTRALIA Retail Sales 0.6% 0.3% 1.0%
Tuesday AUSTRALIA RBA Rate Decision 1.50% 1.50% 1.50%
Tuesday AUSTRALIA Monetary Statement
Tuesday UK Construction PMI 54.8 55.2 56.0
Wednesday UK Services PMI 53.4 53.5 53.8
Wednesday US Factory Orders -0.8% -0.4% -0.2%
Wednesday US FOMC Meeting Minutes
Thursday AUSTRALIA Trade Balance 2.47 bill 1.11 bill 0.56 bill
Thursday SWITZERLAND CPI Index -0.1% 0.0% 0.25
Thursday EUROZONE Monetary Meeting Accounts
Thursday US ADP Employment Change 158,000 181,000 253,000
Thursday CANADA Trade Balance -1.1 bill -0.5 bill -0.4 bill
Thursday US Initial Jobless Claims 248,000 245,000 244,000
Thursday US ISM Non-Manufacturing PMI 57.4 56.6 56.9
Friday UK Current Account -16.9 bill -16.5 bill -12.1 bill
Friday UK Halifax HPI -1.0% 0.2% 0.4%
Friday UK Manufacturing Production -0.2% 0.4% 0.2%
Friday CANADA Employment Change 45,300 11,400 54,500
Friday CANADA Unemployment Rate 6.5% 6.6% 6.6%
Friday US Non-Farm Payrolls 222,000 175,000 138,000
Friday US Unemployment Rate 4.4% 4.3% 4.3%
Friday US Hourly Earnings 0.2% 0.3% 0.2%
Friday CANADA Ivey PMI 61.6 57.7 53.8
Friday US FED Monetary Policy Report

Feutred image fromm Shutterstock

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4 Comments

4 Comments

  1. Nachshol

    July 9, 2017 at 6:37 am

    Great article! Can you make a table of upcoming events regarding crypto currency? Ive noticed the most notorious rallies of coins start due/after a conference or convention. Like the crazy rally of ANS to 10$ last month for example…

    • Mate Cser

      July 9, 2017 at 2:27 pm

      Great idea, will get back to you on that. Thanks for the feedback.

  2. embersburnbrightly

    July 9, 2017 at 8:32 am

    “Traders saw yet another flash-crash on Friday (what is it with Friday’s anyway??)” I am seriously considering just putting my coins into fiat each Friday and then putting them back in on the following Monday. Seems to have become a regular thing, “Fat Finger Friday,” [I will go ahead and “coin” that term right now, thank you]; then a further decline over the weekend around jitters plus lower volume; then “Manic Monday” as volume returns and traders rush to snatch up coins at their new low prices. I have at times expected market manipulation, but maybe in jittery markets, traders just go ahead and cash out on Fridays so they can then use that money to party on the weekends and/or not have to worry about coming back on Monday to find that their assets have dropped in value unexpectedly. Either way, Fridays do seem to be treacherous currently, for sure.

  3. embersburnbrightly

    July 9, 2017 at 8:34 am

    *”suspected,” not “expected,” above. My voice to text program shall receive a light flogging for the error.

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Analysis

Bitcoin’s Record-Breaking Rally Continues as Prices Cross $8,100

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Bitcoin surged to new highs on Sunday, as the world’s largest crypto by market cap continued to generate bids following the cancellation of Segwit2x.

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BTC/USD Price Levels

The value of a single bitcoin reached a daily high of $8,110.59, its best level on record. At press time, BTC/USD was valued at around $8,002 for a gain of 4%.

With the gain, bitcoin’s market cap now exceeds $133 billion. That’s roughly $100 billion greater than Ethereum, the market’s second most valuable cryptocurrency.

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Bitcoin has added more than $1,100 over the past five sessions. It was down around $5,600 just one week ago.

Bitcoin Cash (BCH), a digital currency alternative that broke away from the original blockchain Aug. 1, was down 5.1% at $1,185. BTC and BCH locked horns earlier this month after the Segwit2x hard fork was abandoned.

$10,000 and Beyond?

Institutional clearing platform LedgerX has initiated its first long-term bitcoin futures option, which is set to expire Dec. 28, 2018. In setting up the option, LedgerX is assuming a price of $10,000 at the time of expiration. That’s a 25% premium on current levels.

Investors who buy the option are essentially saying they believe prices will exceed $10,000 by the time of expiration.

Bitcoin is being helped by growing institutional demand for the digital currency, as hedge funds, day traders and other mainstream investment outfits look to access this burgeoning asset class. CBOE and CME Group have each announced plans to integrate bitcoin into more conventional investment vehicles in the coming months.

The rush of institutional money into bitcoin is a sure sign that the digital asset class is becoming too big to ignore. The value of all cryptocurrencies in circulation has already exceeded $230 billion, with more than a dozen coins valued at $1 billion or more. Nine others have a market cap of $500 million or greater.

Coinbase Responds

The rise of institutional capital has also compelled Coinbase to introduce a custodial service targeted at account holders with more than $10 million in assets. This service targets hedge funds and other institutions that have remained largely on the sidelines of the crypto revolution.

In a recent blog post, Coinbase CEO Brian Armstrong announced that the new service will launch sometime next year.

“When we speak with these institutions, they tell us that the number one thing preventing them from getting started is the existence of a digital asset custodian that they can trust to store client funds securely,” Armstrong wrote.

In addition to maintaining the minimum $10 million asset requirement, institutions must pay a $100,000 setup fee to gain access tot he Custodial program. In response, institutional investors will receive assurance that their assets are secure.

The Coinbase Custody website lists broad support for bitcoin, Ethereum (ETH) and Litecoin (LTC), as well as ERC20 tokens. The ERC20 protocol has emerged as the favorite for startups launching initial coin offerings (ICOs), a controversial crowdfunding model that has already overtaken early stage venture capital.

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. 

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Cryptocurrencies

Is Ethereum Ready to Play Catch Up With Bitcoin?

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In mid-June of this year, the difference between the market capitalization of bitcoin and Ethereum had narrowed down to less than $8 billion. This had many market participants excited. They expected Ethereum to dethrone bitcoin as the leader, a move popularly termed as flippening.

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Key observations

  1. Ethereum has hugely underperformed bitcoin
  2. The chart pattern suggests that Ethereum is likely to play catch up in the next few months
  3. Stay on the long side of Ethereum to benefit from the bullish setup

However, fast forward five months and the difference in the market capitalization of the top two cryptocurrencies has increased to about $96 billion. This shows that while bitcoin has raced ahead in the past few months, Ethereum has hugely lagged behind.

However, is the underperformance about to end?

The chart pattern shows that Ethereum is likely to embark on a rally of its own that can carry it to $645 to $670 levels in the next few months. Let’s see how we arrived at these levels.

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Ethereum opened trading at $8.16 on January 1, 2017. It started its rally in March and by June 12, it reached a high of $420, an astronomical rally of about 5047%. Thereafter, it entered a period of consolidation, digesting the gains.

On the charts, Ethereum has formed a large symmetrical triangle, which usually acts as a continuation pattern. The breakout is generally in the direction of the long-term trend, or the trend that was prevailing before the pattern formed. In this case, the sharp move from January to June confirms that the cryptocurrency was in an uptrend before forming the triangle.

However, this is not a fool proof trade because sometimes the symmetrical triangle acts as a reversal pattern. Therefore, the best way to play this trade is to wait for a breakout of the triangle before initiating any trade.

Where can we take an entry?

Currently, the resistance line of the triangle is at about $378 levels, a level close to today’s intraday highs. The bears are likely to strongly defend this level. However, if the bulls breakout of $378 and manage to close above the resistance line, the trade on the long side will set up.

Different traders use different methods to confirm whether the breakout is valid or not. Some wait until price moves 3% above the breakout level, others wait for three consecutive closes above the resistance level.

However, we have observed that the best breakouts never look back, hence, waiting for three days may lead to a missed opportunity. Therefore, we can wait for a closing above the resistance line of the triangle and initiate the long positions on the following day.

The breakout can face resistance at $400 and $420. However, we expect the virtual currency to scale both these resistances and rally towards its pattern target zone of $645 to $670.

Notwithstanding, even the most reliable patterns can fail. Therefore, our stop loss will be kept at $340. We don’t want to hang on to the trade if it falls back into the triangle. We shall raise our stops to breakeven as soon as Ethereum breaks out to new lifetime highs. From thereon, we shall trail the stops higher to protect our paper profits.

Note

The chart pattern suggests a resumption of the long-term uptrend in Ethereum. However, this will not get confirmed until the cryptocurrency breaks out and sustains above $380. Therefore, please initiate positions only on a breakout and close above the triangle. Entering presumptive trades may result in losses.

Featured image courtesy of Shutterstock. 

 

 

 

 

 

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Analysis

Long-Term Cryptocurrency Analysis: Bitcoin Flirts with $8000 as Altcoin Bull Persists

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Bitcoin’s swift recovery was the main topic of the week, as the most valuable coin not just regained its steep losses, but hit a marginal new high towards the end of the period. The entire segment is experiencing capital inflows as the total value of the coins climbed above $230 billion for the first time ever after finally leaving the vicinity of the $200 billion mark.

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BTC breached the $8000 level before turning slightly lower on Friday, but despite the severely overbought daily chart, it is still trading near its all-time highs. As the long-term picture still suggests a deeper correction, investors should wait with opening new positions and traders should also control position sizes here. Key support levels are found at $7700, $7000, and $6700, while the recent key break-out level at $5000 still hasn’t been re-tested.

BTC/USD, Daily Chart Analysis

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Dash is still the most bullish altcoin from a technical standpoint, despite this week’s short-term correction, as the coin is trading above its prior all-time high, and this weekend, it looks ready to test the break-out high near $500. Support levels are still found at $400, $360, and $330, and as the long-term picture is approaching overbought territory, investors should only hold on to their positions here.

DASH/USD, Daily Chart Analysis

The other major altcoins are also mostly in bullish setups, with some of them already in the latter stages of this cycle, like Monero and IOTA, but elsewhere in the segment, there are still opportunities for both traders and investors. Let’s see the detailed long-term view.

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