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The Week in Review: Cryptocurrencies Shine as Global Stocks Rise

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Weekly Recap

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Asset Current Value Weekly Change
S&P 500 2363 0.80%
DAX 12312 2.06%
WTI Crude Oil 50.81 5.92%
GOLD 1247.50 -0.24%
Bitcoin 1072 1.19%
EUR/USD 1.0657 -1.49%

The correction that took hold of global stock markets last week didn’t last too long and the leaders of the rally, namely the Nasdaq and the DAX, were once again flirting with all-time highs this week. The US healthcare bill debate was put on the sideline, as the media’s attention switched to the Brexit process that officially started on Tuesday with the triggering of Article 50 by the British Government. The Pound experienced some volatility thanks to the announcement, but the currency finished the week on a positive note, even as the FTSE 100 underperformed most of its peers.

Weekly progress of the main global indices, Comparison Chart (% gains)

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The end of the first quarter brought active trading in the second half of the week, as per usual, but volatility remained muted following the most volatile period in a while. Oil bounced back strongly after the key technical breakdown of the previous week, and the WTI contract finished above the crucial $50 per barrel on Friday. Gold hovered around the $1250 level all week long, successfully ignoring the rally in the Dollar, as it remains encouragingly strong despite the rate hike cycle of the Federal Reserve. The Euro lost ground against all of its major counterparts, while the Yen and the Franc remained stable throughout the week.

Cryptocurrencies had a great week, with several up-and-coming altcoins gaining significant ground during the period. Ripple and Litecoin were the most notable winners of the week, but Ethereum and Monero also held on to their recent gains. Bitcoin traded sideways, but it remained above the crucial $1000 level, while Dash was the only clear loser of the week.

Economic numbers continued to provide support for the global bull market, with only a few negative surprises throughout the week. In fact, there were several blowout numbers, such as the German retail sales reading, the US consumer confidence index (a new 16-year high!!), and US pending home sales. The only worrying sign is the rise in US initial jobless claim, but even if it’s a quite reliable early indicator, the 258,000 number is still far from being scary.

Technical Corner

The recent correction in global stocks was led by the US financial sector, as the largest US banks suffered double-digit losses following the Fed-meeting. Investors evaluated the central bank’s statement as a sign of a less aggressive rate hike schedule. That pushed bank’s lower, as the hikes are generally considered bullish for them in the current environment. That said, the sell-off was very much in the cards already, as technicals screamed for a correction.

The US financial sector (XLF), Daily Chart

The sector was well in overbought territory following the strong post-election advance, and the ETF that represents the segment also showed a significant momentum divergence before the decline. The extent of the previous rally is well described by the fact that a 12% correction only carried XLF to around the middle of the rising trend channel (this is a multi-trillion dollar industry, mind you).

This week’s bounce took the sector back to a previously important resistance level at $23.75, after precisely reaching the 23.6% Fibonacci retracement level at $23.07. The MACD indicator is now in neutral territory, but further sideways price action, or another sell-off, is still likely before a sustainable rally can develop. It will be interesting to see how the segment performs, as it should be a good tell for the direction of the whole US market in the coming weeks.

Key Economic Releases of the Week

Day Country Release Actual Expected Previous
Monday EUROZONE German Ifo Business Climate 112.3 111.2 111
Tuesday US CB Consumer Confidence 125.6 113.9 114.8
Wednesday US Pending Home Sales (monthly) 5.50% 2.30% -2.80%
Wednesday US Crude Oil Inventories 0.9 million 1.2 million 5.0 million
Thursday GERMANY Prelim CPI 0.20% 0.40% 0.60%
Thursday US Final GDP 2.10% 2.00% 1.90%
Thursday US Initial Jobless Claims (weekly) 258,000 244,000 261,000
Friday GERMANY Retail Sales 1.80% 0.70% -0.80%
Friday UK Current Account -12.1 billion -16.3 bil -25.5 bil
Friday UK Final GDP (quarterly) 0.70% 0.70% 0.70%
Friday CANADA GDP (monthly) 0.60% 0.30% 0.30%
Friday US Chicago PMI 57.6 57.2 57.4

 

The Story of the Week: Apple Hits New High Again And Tops $750 Billion

Apple, Weekly Chart Analysis

The most valuable company in the world keeps on delivering respectable returns to its shareholders, despite its already enormous size. As an example of just what $750 billion dollars mean, a country with such a GDP would be in the top 20 largest economies globally. With that in mind, the fact that the value of the company went down by more than 30% in the past years alone is mind-boggling.

The obvious question is that did the value of the company really change that much in that short period of time? Well, the correct answer is that probably not. The emotional rollercoaster of the stock market led to these fluctuations, together with the change in global investor sentiment, while also being heavily influenced by the amount of “free” money supplied by the central banks.

So, will this be another triple digit rally, or is the stock about to turn lower? The answer is tricky, since we are after an 8-year bull market that helped Apple immensely, and a new bear market could wipe out a large chunk of its recent gains (yes, even such a strong brand is vulnerable). What’s sure is that the trend is still clearly bullish, and the company also keeps on paying dividends. That said, taking some chips off the table when the stock is getting overbought, like right now, is not a bad idea, as a good entry point is always ahead.

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

Crypto Update: Post-Crash Oversold Bounce Ensues in Crypto-Land

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As Bitcoin plunged below $10,000 yesterday, nearing the crucial $9000 level, all of the majors followed the most valuable coin in the panic sell-off. Our trend model turned short-term neutral in most of the cases, while the long-term prospects also improved thanks to the deep and violent correction.

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Bitcoin itself already traded at slightly attractive levels, as it breached our first possible target for the correction, but we expect a lengthy bottoming process with a possible dip to the $8200 or $7650 supports.

As for the short-term, the oversold rally initiated from the lower boundary of the declining trend channel, and a choppy, hard-to-trade consolidation period is likely ahead that could last throughout the weekend. Strong overhead resistance is found at $13,000, likely capping the advance for now, while the $11,300 support/resistance level could also be in the focus in the coming sessions.

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BTC/USD, 4-Hour Chart Analysis

Altcoins

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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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Analysis

The Crypto Correction: What You Need To Know

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In the short span of about 24 hours prices of cryptocurrencies have fallen like a stone. Investors have either given back or taken losses of sizable amounts. Measuring the one-day drop: bitcoin -21%, Ether -29%, Litecoin -29%.

From its December all time high near $20,000, bitcoin has given back more than $200 billion in value. This amounts to more than 80% of the companies on the New York Stock Exchange or Nasdaq. Even for those who have experience-trading crypto, the events of the last few days can challenge nerves.

What is the right plan of action? Possibly no plan at all, by that I mean sitting tight and doing nothing, could be the best plan. What ever you choose, the first thing to do is to shut down your computer and turn off CNBC. These are all entirely emotion driven groups and right now they are making loud negative headlines reminding us of quotes from JP Morgan CEO Jamie Dimon and Warren Buffett.

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The same sources are painting a dark case today. These are the very same folks that were gaga over crypto last year while prices were rising. Now these sources are quoting Warren Buffett who predicted with a high degree of confidence that cryptocurrencies will have a bad ending.

If you listen to Christopher Harvey, Head of Equity Strategy at Wells Fargo, you get an even more dire prediction. He recently appeared on CNBC stating that the cryptocurrency price correction could spill over into the overall stock market.

There is a rule of thumb on Wall Street. If you are right 51% of the time, you are considered an investment genius. This means most opinions are wrong at least half of the time. This could be the case with today’s crypto naysayers.

Prices And Business Fundamentals Don’t Always Match

The number of true experts in cryptocurrencies is small relative to the number of investors. That means there is more emotion than usual driving prices in both directions. It is this volatility that keeps certain investors on the sidelines.

But if you have done your research and have a view of the world in 2028 short-term volatility is not your enemy. Warren Buffett, the biggest crypto naysayer is a master of long term investing. During the 2008 financial crisis, when the world was close to the brink of financial disaster, Buffett was standing by with billions to loan Goldman Sachs charging an outrageous 10% rate of interest. There is a lesson for us here.

Don’t Get Distracted By Short Term Issues

Korea is a big market for crypto demand and, along with China has produced headlines threatening to close down cryptocurrency exchanges. I have not dealt directly with any of these so the analysis of others is necessary.

These folks point out the excessive price premiums as evidence of the behavior of bad actors in the game. So any action by governments to clean up the exchanges could produce a better experience for investors. And let us not forget cryptocurrencies are global. There are plenty of exchanges in the world that make markets.

Korea does not have a monopoly on bad actors. The exchange and lending platform Bitconnect, in recent days, announced that it is closing. The company was recently served with a cease and desist order. Ethereum founders had criticized the exchange for their practices that many believe were bordering on a Bernie Madoff style Ponzi scheme.

The Tipping Point Has Been Reached

The jury is no longer debating the verdict. Cryptocurrencies have become embedded in the global economy. According to Google’s Annual Report on Search Facts, bitcoin and cryptocurrencies were the second most important topic in the world during 2017.

Bitcoin is all about fast, anonymous, low cost movement of money anywhere on the planet. Those lofty goals have not yet been achieved but with tens of thousands of businesses now accepting bitcoin including some hefty Fortune 500 companies and with the Bitcoin Lightning Network coming on, bitcoin’s shortcomings are being addressed.

Bitcoin Futures: Acceptance Is Spreading

When I learned that bitcoin futures would be traded in the US by the CME and CBOE, the only question was how long it would be before other countries recognized the legitimacy of bitcoin futures. Well, it didn’t take long. The Hong Kong securities regulators, SFC issued a report on December 11th giving investors a green light.

Within less than a year futures contracts will be available on Ethereum and possibly others.

Ethereum: The Future Is Here

Ethereum has always had a more obtuse purpose. It was never intended as a medium of exchange like bitcoin. For what it is worth, Ethereum is less likely to be singled out by governments and central banks that fear loss of economic control.

Descriptions like decentralized blockchain platform offering smart contracts and driven by Ether require some time to appreciate. Ethereum is open sourced and applications oriented. You don’t need to understand the technology you only need to envision what it can be applied to.

Ethereum co-founder Steven Nerayoff tells us the number of Ethereum projects today is already ten times the number of last year. Here are just two examples.

Unilever

Unilever, the $52+billion food and packaged goods giant, is working on a blockchain based project to better manage its massive global supply chain. So far it is only being tested but consider the size: 10,000 Malawian tea farmers. And this is just the start of their massive corporate wide supply chain. Imagine what this will look like if Unilever starts to take things seriously: stay tuned.

On The Vanguard

Now the $5 trillion Vanguard group is getting the blockchain bug.  They are the investment industry’s low cost provider. Now they are embarking on test to apply blockchain technology for data sharing.

Caveat Emptor

The reality is the cryptocurrencies are embedded in the global economy and likely to grow dynamically for a long while. This doesn’t protect us from short-term events. That is why huge price corrections are so interesting. The Warren Buffett habit of always having deep cash reserves to pounce on opportunity when frightened investors run is a strategy that has worked well over multiple decades.

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

Technical Analysis: Bitcoin Hits First Correction Target as Volatility Reigns Supreme

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The violent correction that created a full-on panic in the cryptocurrency segment continues to unfold in a rather orderly way from a technical standpoint, reflecting the extreme nature of the preceding rally. That said, the percentage losses in some of the coins are huge, and the collapse of Bitconnect accelerated the process, spreading uncertainty among investors, and sentiment quickly got bleak.

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Bitcoin remains in the center of attention, and the most valuable coin finally breached the $10,000 level today, causing another strong wave of liquidation in the majors, that could be the base of a more durable bottom, and a consolidation in the coming days after the crazy last couple of days.

The coin is now oversold from a short-term perspective, and although further losses are likely before the end of the cycle, given the still only neutral long-term momentum readings, a counter-trend move is possible in the coming days. Below, $9000, strong support levels are still found at $8200 and near $7650.

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BTC/USD, 4-Hour Chart Analysis

Altcoins got slaughtered in the two-day crash with Ripple leading the way lower, while Ethereum also lost its relative strength amid the broad sell-off and its recent trendline break. ETH got close to the next major support level at $740 during today’s move, and as the short-term momentum is now oversold, a bounce to the zone around $1000 could be ahead. We still expect the correction to continue in the token, as the long-term momentum remains overbought, with key support at $625 and near $575.

ETH/USD, 4-Hour Chart Analysis

Ripple fell as low as the $0.85 support level during the crash, and although the coin rebounded above $1 afterward, it remains 70% off its recent all-time highs. Long-term investors could already accumulate small positions on the short-term sell-offs, although the correction will likely continue, and a prolonged consolidation phase might also be ahead. Key support levels are now found at $0.85 and $0.68, while resistance is ahead at $1.25.

XRP/USDT, 4-Hour Chart Analysis

(more…)

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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