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Turkey’s Constitutional Referendum: Political Chaos or Dictatorship?

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Turkey, the regional superpower with a fragile economy, a faltering currency, a refugee crisis caused by the Syrian war, a divided society, and an autocratic leader is at a major crossroad. On Sunday, the nation will turn out to decide on transforming the country’s democracy into a significantly more centralized presidential democracy with a package of constitutional amendments. The current government pulled all strings to demonize the “No” voters, while jailing many opposition politicians, and sacking thousands of alleged opposition officials, judges, and military leaders.

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The campaign also made international waves, as it involved Turkish communities all over Europe, sparking a severe diplomatic conflict between the Netherlands and Turkey, with more controversies in Germany and other European nations.

The opposition fears that the 18 amendments would cement Erdogan’s “dictatorship” for good, turning the country back from the road that Kemal Atatürk set following the fall of the Ottoman Empire. The new rules would most importantly take away the parliaments oversight of ministers, lower the power of the Prime Minister and the military leadership, while vastly expanding the role of the president.

Erdogan and his supporters say that the new rules would help the country in getting stronger and more effective in fighting terrorism and the looming economic crisis, while providing “unity” in a nation that is divided by religious views, ethnicity, and strong political partisanship. Would these divisions go away with a simple vote? Hardly, but Erdogan could stay in power until 2029 (with two additional terms as a president) and try to stabilize the country, a feat that he has failed to succeed in in the past 15 years.

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What to expect and how will the markets react?

Although it’s easy to argue that the “No” vote is the more desirable for the country, the short-term consequences of that outcome might be scary. Investors fear that the ensuing political chaos—a likely brought-forward election and the possible backlash by the ruling party against the opposition could lead to another round of capital flight from Turkey.

The Turkish Lira has already been under severe pressure in the last few years losing more than half of its value against the US Dollar. The country’s foreign reserves are also quickly declining, and that could lead to a full-blown currency crisis if investors remain reluctant to finance the debt of the country.

TRY/USD weekly performance Chart

The stock market has been stable in recent years, but given the currency’s decline and the global bull market, this performance is not stellar by any means. If the “Yes” campaign wins, stocks will likely rally, together with the Lira, while bond yields could retreat, giving Erdogan some breathing room to negotiate with the EU, consolidate his power, and finally focus on the economy and the pressing social and ethnic issues.

BIST 100 Turkish Index, Long-Term Chart Analysis

Looking at the chart of the main Turkish Stock Index, it seems likely that the benchmark will challenge the 100,000 level if it manages to break out from the giant multi-year consolidation pattern that has dominated the market since the top of 2013. The index already rose 20% this year, as the chance of the passing of the reform grew.

The long-term consequences are hard to judge, but if Erdogan doesn’t soften his grip on the institutions, the opposition, and minorities, the initial rally could fade later on this year and the Lira might resume its long-term slide, while stocks also get under pressure. It’s important to note that now more than ever, the country is dependent on investor confidence, and in the case of another global economic downturn, Turkey will definitely be hit hard, being a risky investment target in itself.

Polling and Betting Markets

Polling Date Yes No
12-13 April 59.4 40.6
11–13 April 44.1 30.6
8–13 April 52.9 34.1
8–12 April 46.1 53.9
7–10 April 46.9 44.1
5–10 April 39.3 45.7
5–10 April 54.6 41.4
5–10 April 52 48
8–9 April 46.6 43.5

 

The recent polling history

The latest polling averages show the narrow lead of the “Yes” votes with the rolling average of the polls standing at 51.50% to 48.50%. That said, polling in the country is even more biased than in the US or Europe, and it’s hard to trust any forecast especially given the narrow margins. Betting markets are showing a 70% chance for Erdogan’s victory, but again, these markets have been misleading in both the case of the Brexit vote and the US elections.

There might be a large number of “hiding” no voters given the aggressive government propaganda, but the bias of the administration could, without a doubt, lead to a skew towards the yes votes. For now, one can only hope for a clean referendum that won’t be overshadowed by violence. No matter what the result will look like, history is in the making, and Turkey will not be the same country on Monday.

Stay tuned for our take on the results as soon as they become public.

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

Daily Analysis: Oil Extends Rally as Nasdaq Leads Stocks Higher

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Friday Market Recap

Asset Current Value Daily Change
S&P 500 2749 1.38%
DAX 12,483 0.18%
WTI Crude Oil 63.58 1.29%
GOLD 1330.00 -0.16%
Bitcoin 10,14 -0.09%
EUR/USD 1.2295 -0.28%

US equities built up some bullish momentum towards the end of the week, ignoring the technical damage that the volatility-crash caused, and the major US indices rallied into the close today, squeezing the shorts. The Nasdaq, which led the rally as we expected, took out the key 6850 level in late trading and added another percent to, incredibly enough, finish only a hundred point of the all-time high.

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NASDAQ 100 Futures, 4-Hour Chart Analysis

Should the tech benchmark retest the high next week, it will be amid very strong negative divergences, but hey, those divergences have been building for months now. The rally in equities was boosted by the dip in Treasury yields, especially at the long end of the curve, while Amazon continued ot lead the charge, closing right at the historic $1500 per share level.

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Russell 2000 (Small Cap) Index, 4-Hour Chart Analysis

The advance in the Dow and the S&P 500 is much less convincing and with small caps also lagging the tech-behemoth juggernaut, we remain skeptical regarding the sustainability of the move. That said, if the broader indices stay above the key levels, we will be trading the long side in equities, even as from an investment standpoint, valuations are still way above acceptable.

Forex Markets and Commodities

The lackluster performance of European and Asian stocks adds to the negative divergences, especially as the Euro stopped appreciating against the Greenback, and that should be helping stocks of the old continent. Of course, the DAX and the EuroStoxx 50 could play catch-up next week, barring another surge in the common currency.

EUR/USD, 4-Hour Chart Analysis

The most-traded forex pair remains in a short-term downtrend, as it failed to recapture the previously broken rising trendline, and the commodity related risk-on currencies also remained under pressure. The Canadian Dollar did bounce back off yesterday’s 8-week lows, boosted by the much hihger than expected inflation release and the jump in the price of crude oil.

USD/CAD, 4-Hour Chart Analysis

Oil benefited from the positive shift in sentiment, while the Syrian situation, which took a backseat in the headlines, still supports the rally. The Japanese Yen and gold were stable amid the risk-rally and that adds to our suspicions regarding the upside potential form these levels.

Cryptocurrencies

The segment started out the day with a strong bounce that carried the major coins higher by around 10%, but given the recent steep short-term pullback, even that wasn’t enough to turn the tide, and the day ended with an (almost usual) sell-off after the US close. Despite the recent volatility, the overall picture is still encouraging, with most of the majors being safely above the crash lows, likely in a new bullish cycle that has the potential to last for several more weeks or even months.

While new all-time highs are it guaranteed following the 60-70% declines among the largest coins, but even without those, plenty of upside potential is left for investors. With that in mind, investors should hold on to their coins and even add to their holdings on the short-term dips like the current one.

ETH/USD, 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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Market Overview

Bitcoin is Clear

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It’s not often that drama from reality television influences the stock markets but I suppose it’s one of the hallmarks of the new world we live in.

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For those of you who haven’t heard yet. Kylie Jenner sent out this tweet…

…and SNAP stocks did this…

The follow-up apology didn’t seem to help much though.


Love or no love, it’s pretty clear that investors are following these personalities fairly closely and taking notes.

@MatiGreenspan
eToro, Senior Market Analyst

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Today’s Highlights

  • More Market Funk
  • Bitcoin is Clear
  • CME Bitcoin Expiration

Please note: All data, figures & graphs are valid as of February 23rd. All trading carries risk. Only risk capital you can afford to lose.

Traditional Markets

The market funk continues. All the indicators are totally sensational and correlations are way-out.

The Dow Jones went up and the Nasdaq was down. This morning the Asians did great but Europe is starting out weird.

Things are just kind of all over the place. There weren’t really any progressions in Volatility or the 10 Year Yield. Both kind of just coasted through Thursday.

But hey, today is Friday. So we could get some action going into the weekend. Especially with some heavy fed activity planned for this evening.

Of course, the only FOMC member traders really want to hear from at the moment is the newly appointed Jerome Powell, who will be giving his first interest rate announcement on March 21st.

Bitcoin in the Clear

The community celebrated yesterday as the bitcoin mempool was cleared for the first time in months.

Here we can see that during the peak of the FOMO from December 8th util January 21st, the bitcoin network was backlogged with more than 100,000 unconfirmed transactions at any time.

This comes as the adoption of both Segwit and the Bitcoin Lightening Network have been dramatically increased.

In short, the scaling issue that we’ve spoken about often in the last few months may finally have a solution. Of course, we’ll only know for sure once we give it a real test.

For now, transactions rates are at the lowest point since at least May of 2016, with an average of only 2.14 transactions per second (TPS) over the last 7 days.

It should be noted however that adoption of the Lightning Network will actually reduce the TPS rates since Lightening transactions happen off of Bitcoin’s main chain.

Rather than adding each transaction to the main blockchain, trusted parties are able to transact freely with each other. They then send an aggregate summary of their transactions onto the main blockchain so that the rest of the network can update the final results.

Either way, it’s clear for now that there’s simply less activity on Bitcoin since the pullback. This can be confirmed by Google Trends which shows that interest in the world’s largest digital currency is now as low as it was in early November, which at the time was an all-time high.

Futures

Another thing to bear in mind is that the CME February Bitcoin futures contracts will expire today. Any positions that are not rolled over to the March contracts will need to be settled in cash on the Gemini exchange.

It should be noted that Wall Street is still taking it very slowly with bitcoin, and so far only 5,840 BTC have been traded on the February CME contracts.

Some people have pointed out that the price of bitcoin tends to dip around the time of the contract expirations, but I still haven’t seen enough evidence to support this theory.

For now, my tinfoil hat is still in the closet. Will let you know once I take it out. 😉

Have an amazing weekend!!

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.

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: Stocks Refuse to Fall Even as China Takes Over Key Insurer

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Although it should have been a very quiet week in China, thanks to the New Year celebrations, the recent surge in volatility and the plunge in equities didn’t pass without consequences in the key market. Just shortly after effectively shutting down the Chinese version of the Volatility Index (VIX) (presumably to calm the markets…), one of the main actors of the monstrous financial web, Anbang, of the country had to be taken over to avoid a systemic event and stop the “creative” financial engineering that involved criminal activity (the shadow of 2008).

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China will likely need many more duck-tapes like this one if it wants to stop the largest credit bubble in human history to collapse, but for now, the solution could work. Equity futures edged higher since yesterday’s volatile close, and as the major US indices are holding up well, not far off last Friday’s highs, our bearish short-term view might have to be revised.

Nasdaq 100 Futures, 4-Hour Chart Analysis

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As we discussed before, the long-term uptrend is intact, and we expect at least a re-test of the highs even if we are in a large-scale top formation, but we thought that the technical damage caused by the crash three weeks ago would require more healing.

We are not turning bullish just yet, but today’s session could finally decide if we the BTFD-crowd is strong enough to turn the tide after the choppy drift lower this week. We are still focusing on the Nasdaq, as the broader market seems to be following the lead of the tech benchmark, and a move 6850 (in the Nasdaq 100 futures, and still the 2735 level in the S&P) would be a very positive sign for bulls.

DAX Index, 4-Hour Chart Analysis

The German DAX index is also showing some tentative short-term relative strength although it remains almost 10% below its all-time high, and it remains a strong negative divergence to be monitored.

Forex Markets Quiet

EUR/USD, 4-Hour Chart Analysis

The main pairs are trading in a choppy narrow range today after the strong move in the Yen and the drop in the USD yesterday. US Treasury Yields are edging lower today, helping the calm in equities and currencies, but on a bearish note, commodity currencies failed to rebound so far, and they were providing good signals since the crash. Day-traders should note that the Canadian Dollar will likely be very active again, with the Canadian CPI report coming out pre-market.

To sum the outlook up, we are still leaning on the risk-off side here regarding the short-term outlook, but we wouldn’t bet the farm on that, as there are mixed signals before the weekend.

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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