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Week in Review

Week in Review: Cryptocurrency Market Cap Grows

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The global cryptocurrency market caught a tailwind higher this week, as bitcoin and several leading altcoins extended gains.

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Bitcoin Hits $11,000

The week’s most noteworthy achievement was bitcoin‘s new record high. The world’s most active cryptocurrency spiked above $11,000 for the first time ever, as investors continued to bank on institutional support with the arrival of bitcoin futures later this month.

BTC/USD attained a market cap of $192 billion on Wednesday as prices eclipsed $11,300. After a sharp correction on Thursday, bitcoin bounced back more than 12% in the final session of the week to settle around $10,860. It gained a staggering $2,570, or 31%, over the five-day period.

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Trade volumes also rose this week, and as of Friday, the market had turned over more than $6.7 billion over a 24-hour period.

Cryptocurrency Market Cap Spikes

The combined value of cryptocurrencies in circulation reached record levels this week, as capital poured into bitcoin and several altcoins. The latest peak occurred on Wednesday when the market reached $342 billion. A $65 billion correction quickly followed before the market resumed higher.

As of Friday, the total market cap was around $324 billion, according to CoinMarketCap.

A total of 16 coins are valued at $1 billion or more, with 13 coming in at over $2 billion.

In addition to bitcoin, Ethereum contributed positively to the overall market cap in the middle of the week. The world’s no. 2 digital currency rose above $500 for the first time ever before scaling back its advance in the latter half of the week. At the time of writing, ether was trading around $463.

Meanwhile, bitcoin gold (BCH) lost 13% this week following a sharp correction on Thursday.

Bulls Regain Control of Wall Street

It was another week of record-setting gains for U.S. stocks, with the Dow Jones Industrial Average climbing above 24,000 for the first time. The blue-chip index surged more than 300 points on Thursday to close at 24,272.35, its third consecutive record close. The S&P 500 and Nasdaq Composite Index also settled in record territory.

Despite the strong weekly performance, implied volatility rose for five days straight and eventually settled at its highest level since Nov. 16. The Chicago Board Options Exchange (CBOE) Volatility Index rose 18% this week to close at 11.43.

Political Turmoil

U.S. stocks gave back some of their gains Friday after the FBI formally charged Michael Flynn of lying to Washington about contacts with the Russian ambassador. The S&P 500 was down more than 1% following the news before paring losses later in the day.

Flynn, who briefly served as President Trump’s National Security Adviser, later pleaded guilty.

According to the FBI, Flynn communicated with former Russian Ambassador to the U.S. Sergey Kislyak after being asked by a senior Trump official to probe foreign governments about a forthcoming UN Security Council resolution on Israel.

Accusations of Russian collusion have dogged the Trump presidency since day one. Interestingly enough, the bulk of the accusations surfaced only after Democratic candidate Hillary Clinton was defeated.

Tax Reform on the Horizon

Senate Republicans say they now have the votes to pass sweeping tax reform before the holidays, a sign that the Trump administration was finally mobilizing support for its agenda. The proposed bill, which includes $1.4 trillion in tax cuts, contains provisions to lower the corporate tax rate to 20% from 35%. It also re-writes international business tax rules and lowers individual rates on a temporary basis.

“In the end it all came together and we’re pretty excited about what we’ve been able to accomplish for the American people,” Republican Senate Majority Leader Mitch McConnell said in an interview Friday, as quoted by The Wall Street Journal.

The Week Ahead

The first week of December features several high-profile data releases, including the all-important nonfarm payrolls report. The monthly jobs report is considered a bellwether for the health of the U.S. economy. Chinese trade and inflation data will also make the rounds in the latter half of the week.

On the political front, the U.S. House and Senate will seek to reconcile competing versions of the tax bills in time for Christmas. Although the bills overlap on key areas, important differences still need to be sorted out.

The following chart courtesy of WSJ highlights the differences between the House and Senate tax reform bills:

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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Week in Review

Week in Review: Bitcoin’s Improbable Surge Continues, Dollar Posts Best Week This Year and Stocks Hit New Records

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Bitcoin has been the talk of the town lately, as volumes spiked and prices surged in anticipation of the CBOE futures contract. Altcoins also rose sharply before reversing course later in the week.

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Stocks also rose this week, with Wall Street returning to record territory. Meanwhile, the U.S. dollar index also put up strong gains on upbeat domestic data and uncertainty overseas.

Bitcoin’s Earth-Shattering Volumes

BTC/USD went through the roof this week, as prices crossed $19,500 in an incredible show of strength. At its peak, the world’s no. 1 cryptocurrency was valued at roughly $310 billion.

By the end of the week, bitcoin was trading at roughly $16,000 for a five-day gain of $5,000.

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Bitcoin’s 24-hour transaction volumes reached a staggering $29 billion Thursday, a five-fold increase over month-ago levels. On Friday, daily volumes reached $21 billion, with BitMEX, Bithumb and Bitfinex accounting for more than a third of the turnover.

Altcoins also surged this week, bringing the total market cap to $452 billion. The global cryptocurrency market shed $50 billion on Friday in a broad correction before prices stabilized within $10 billion of the record high.

CBOE Announces Bitcoin Futures Launch Date

Underpinning the latest rally in cryptos was CBOE’s surprise announcement that it will begin offering bitcoin futures this Sunday. The new contract, which will be traded under the ticker symbol “XBT,” will be offered free through December.

“Given the unprecedented interest in bitcoin, it’s vital we provide clients the trading tools to help them express their views and hedge their exposure,” CBOE chairman and CEO Ed Tilly said.

By launching its derivatives contract Sunday, CBOE becomes the first major exchange to venture into bitcoin. CME Group is expected to launch its own bitcoin futures contract Dec. 18.

Stocks Return to Record Territory

Stocks returned to record highs this week, with the S&P 500 Index gaining 0.6% to close at 2,651.50. Ten of 11 sectors contributed to the rally, with telecom, healthcare and energy leading the way higher. Energy experienced a broad retreat earlier in the week along with information technology stocks.

The Dow Jones Industrial Average added 117.68 points, or 0.5%, to close at 24,329.16 on Friday. Meanwhile, the technology-heavy Nasdaq Composite Index gained 0.4% to 6,840.08.

A measure of 30-day volatility known as the CBOE VIX declined for four straight days on Friday to close at its lowest level in over a month. The so-called “fear index” settled at 9.58 on Friday, on a scale of 1-100 where 20 represents the historic mean.

European equity markets also rallied Friday after Britain and the European Union announced a breakthrough in Brexit negotiations, paving the way for future trade talks. The Eurozone blue-chip Stoxx 50 Pr climbed 1.8% for the week to end at its highest level since Nov. 29.

Japanese stocks finished a volatile week on a high note, with the Nikkei 225 adding 2.9% over a two-day period. The benchmark gauge plunged through the first half of the week.

Tax Reform on the Horizon

The Trump administration is moving closer to implementing its long-awaited tax plan after Senate Republicans passed a sweeping overhaul of the legislation earlier this month. The president now believes Congress will come together quickly to reconcile differences in time for Christmas. Trump has stated that the new plan will come into effect Jan. 1, 2018 if Republicans can iron out differences between two versions of the bill.

Analysts say that the new tax provisions would be retroactive in the event that a deal is reached in the new year.

Dollar Hits Its Stride

The U.S. dollar wrapped up its best week of the year, as upbeat economic data and expectations of higher interest rates drove the world’s most active currency higher. The U.S. dollar index (DXY), which tracks the greenback’s performance against a basket of six peers, rose 1.1% this week to close at 93.90.

U.S. employers added 228,000 workers to payrolls last month, following a downwardly revised gain of 244,000 in October, the Labor Department reported Friday. Analysts in a median estimate called for a November increase of 198,000. The jobless rate held steady at 4.1% on month, while average hourly earnings rose at a smaller than expected 2.5% annual rate.

The Week Ahead

The Federal Reserve’s policy board will hold its final meeting of the year next week. Policymakers are widely expected to raise interest rates for a third time this year, according to the CME Group’s FedWatch tool. The rate announcement will be accompanied by a quarterly summary of economic projections covering GDP, unemployment and inflation.

Federal Open Market Committee (FOMC) members will coalesce in Washington on Tuesday, with the official rate announcement scheduled for the following Wednesday afternoon.

Global data flows will also make headlines next week, including reports from China and the United States.

In other policy news, the Bank of England, European Central Bank and Swiss National Bank will each deliver interest rate verdicts. No change on either front is expected.

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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Week in Review

Weekly Analysis: European Stocks Hit New Highs in a Historic Period for Cryptocurrencies

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Weekly Recap

Asset Current Value Weekly Change
S&P 500 2398 0.88%
DAX 12675 1.76%
WTI Crude Oil 46.47 -5.75%
GOLD 1228.00 -3.21%
Bitcoin 1570 16.11%
EUR/USD 1.0998 0.91%

Global stock markets had a surprisingly quiet week, despite Federal Reserve’s meeting and the US Employment Report, which usually cause volatile episodes all over the world. The major indices were mixed with the European exchanges outperforming their peers by a wide margin. US equities showed weakness “under the hood”, as several broad indices underperformed the leaders of the market. This divergence might be the precursor of a risk-off period, although the second round of the French election will likely be a positive influence in the first days of the week.

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Traditional currencies were little changed amid the cryptocurrency-surge, as the Fed’s rate hike strategy seems unchanged, and the uptick in the US economic numbers halted the ongoing depreciation of the US Dollar. The Yen was among the weakest majors, while the Pound gained ground on most of its peers. Commodity currencies took a huge hit in this week, although the Canadian Dollar recovered strongly on Friday thanks to the rebound in the price of oil. Oil suffered a “liquidation-event”, as it plunged below its 5-month lows and crashed as low as $44 per barrel. Gold also fell sharply, and ended the week near the $1225 level, as the positive global sentiment hurt safe-haven assets.

 

WTI Crude Oil Futures, Daily Chart Analysis

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Cryptocurrencies

The cryptocurrency market had a euphoric week, as the strong rally in Bitcoin and the continued surge in almost all other major coins propelled cryptocurrencies to the headlines of the mainstream media. BTC hit a high near $1600 on all of the major exchanges before entering a fierce and volatile correction towards the end of the week.  The total capitalization of the market reached as high as $46 billion, an incredible 40+% jump in once week. Litecoin and Ripple were the other stars of the week, closely followed by NEM and Ethereum. Monero also performed well, while Dash and Ethereum Classic were the laggards of the period, although the latter held on well to its recent lofty gains.

Litecoin, 4-Hour Chart Analysis

Economic Numbers

The holiday-shortened week proved to be the most bullish regarding economic news in a while, with the US and British numbers providing plenty of positive surprises throughout the period. The Fed’s interest rate decision was in line with expectations, while the Employment Report was back on track, with a Non-Farm Payroll growth of 211,000 and the lowest Unemployment Rate since 2008, at 4.4%. Manufacturing PMIs were mixed globally, with the Chinese and US numbers slightly missing the consensus estimates, while the British number coming in much higher than expected.

On a negative note, the fall in commodities is suspicious for the global economy, especially after the huge Hurray following Trump’s victory. All in all, modest growth is expected to continue, although the very high level of debt in virtually all major countries, coupled by the record low level of interest rates makes the “growth story” very fragile.

Technical Corner

S&P 500, 4-hour Chart Analysis

The S&P 500 remained in a tight range throughout the week as it failed to follow through the surge of the gap of the previous Monday. This slightly negative behavior might lead to a break-down in the coming days, although a push to new highs is also in the cards following the last minute surge on Friday. The MACD indicator drifted back to neutral territory thanks to the sideways price action, with a possibly developing advancing trend-line being just below the current levels. The current pattern will likely resolve soon, and Sunday run-off in France could provide a trigger for the next directional move.

Key Economic Releases of the Week

Day Country Release Actual Expected Previous
Monday UK Treasury Sec Mnuchin Speaks
Monday US Personal Spending 0.00% -0.10% 0.20%
Monday US ISM Manufacturing PMI 54.8 56.6 57.2
Tuesday CHINA Manufacturing PMI 50.3 51.4 51.2
Tuesday AUSTRALIA Base Interest Rate 1.50% 1.50% 1.50%
Tuesday UK Manufacturing PMI 57.3 54 54.2
Wednesday UK Construction PMI 53.1 52.1 52.2
Wednesday EUROZONE Prelim GDP 0.50% 0.50% 0.40%
Wednesday US Crude Oil Inventories -0.9 million -3.3 million -3.6 million
Wednesday US ISM Non-Manufacturing PMI 57.5 56.1 55.2
Wednesday US ADP Employment Report 177,000 178,000 263,000
Wednesday US FOMC Statement
Wednesday US Base Interest Rate 1.00% 1.00% 1.00%
Thursday AUSTRALIA Trade Balance 3.11 bill 3.3 bill 3.57 bill
Thursday UK Service PMI 55.8 54.6 55.0
Thursday CANADA Trade Balance -0.1 bill 0.3 bill -1 bill
Thursday US Initial Jobless Claims (weekly) 238,000 246,000 257,000
Thursday US Trade Balance -43.7 bill -44.9 bill -43.6 bill
Thursday EUROZONE ECB President Draghi Speaks
Friday CANADA Employment Change 3,200 20,000 19,400
Friday CANADA Unemployment Rate 6.50% 6.70% 6.70%
Friday US Employment Change 211,000 194,000 98,000
Friday US Unemployment Rate 4.40% 4.60% 4.50%
Friday US Hourly Earnings 0.3% 0.30% 0.20%
Friday US FED Chair Yellen Speaks

 

The Story of the Week: Something Smells Fishy in China…

 

Long-Term Chart of the Shanghai Composite

We have been monitoring Chinese stocks in recent weeks, as the global rally since the French elections failed to ignite an advance in mainland China. In fact, the Shanghai Composite had scary declines in the wake of the crumbling of the interbank lending system, and the “shadow banking system” in the country. While this might sound technical, it is a very simple thing; the major Chinese banks are losing trust in each other and refusing to lend money to one another. Why is that? Because they fear (actually they know) that there is a huge problem in the banking system of the country.

Some experts argue that the country is in the “Mother-Of-All-Credit-Bubbles” that has been blown by the government in order to maintain growth in the country. Sure, the volume of construction projects that has been driving growth in recent years is borderline insane; and those projects were running on borrowed money, with, sometimes, very bleak return prospects. The chart above shows that non-financial credit in the country went up almost 5-times in 8 years until 2015, and that trend continued in the past year as well.

If we look around, we can see that besides stocks several related assets are showing signs of distress as well, such as commodities, commodity-related currencies, and Chinese corporate bonds. That said it’s hard to say that the bubble is popping right now, and that a US-style credit crisis is imminent. Credit bubbles tend to go on for much longer than expected even in free economies, let alone in a country which is centrally governed by people who get scared if the GDP growth rate falls below 5%.

As China expert Kyle Bass notes in this video, the re-structuring of the system is inevitable, and it will cause huge waves globally, but the timing of it is more than tricky. On another note, the coming Chinese credit crisis won’t mark the end of the China or the global economic growth, but it will be a huge bump on the road, with lots financial pain.

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Analysis

Weekly Analysis: Stocks and Cryptocurrencies Surge as the Eurozone is Saved (For Now)

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Weekly Recap

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Current Value Weekly Change
2380 1.30%
12470 2.11%
49.19 -1.45%
1269.50 -1.71%
1318 7.85%
1.0898 1.63%

 

Traders could almost hear the collective sigh of relief in the financial world, as the French election removed the risk of an imminent political crisis in the Eurozone. Global stock indices surged to new bull market and all-time highs in the aftermath of the referendum, with the European indices understandably leading the way higher. The NASDAQ also continued to outperform the other majors, boosted by corporate earnings, while the Nikkei ignored the pronounced weakness in Chinese stocks, as Japanese traders celebrated the decline in the Yen. The markets held up well throughout the week, although a lot of stocks failed to join the party, and the weak economic numbers in the US caused a dip towards the end of the week.

Not surprisingly European currencies were the strongest this week, but on an interesting note, the Pound fared better excluding the Monday morning gap higher. The currency remains in a robust short-term uptrend since the announcement of the snap elections in June. The Dollar index remains near its 5-month lows, thanks to the recent strength in the Euro, although the Yen was heavily sold this week, as the demand for safe-haven assets dwindled. Gold was also the victim of the positive sentiment, but it remained relatively strong and gained ground near the end of the period, following the slightly dovish meetings of the European Central Bank and the Bank of Japan. Oil remained under pressure despite the rally in risk-on assets and finished the week near the $49 support after several days of choppy trading.

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Dollar Index, Daily Chart Analysis

Cryptocurrencies

The cryptocurrency market had another blowout week, as not only did Bitcoin hit a new all-time high, but several other currencies experienced fierce break-outs. The change in the value of the market reflected the buzz, as the sum of the coins’ market capitalization topped $34 billion, just a few weeks after reaching $30 billion for the first time. Ethereum, Ethereum Classic, and NEM were among the notable winners of the week, as all of them surged to new highs. Towards the end of the week, even the previous laggards among the majors, such as Ripple, Monero, and Dash rallied strongly. Ripple and Dash are flying high so far in weekend trading as well, being up by more than 30%, and 20% respectively. Litecoin failed to rise above last weekend’s highs but it remains just below those levels after a choppy consolidation week.

Economic Numbers

The US economy provided another round of reality check for bulls, as almost all of the major releases posted significant negative surprises. Although the numbers themselves were not terrible by any means (excluding the three-year low in GDP growth), the string momentum that carried the Trump-rally to new highs earlier on this year seems to be fading. While markets don’t expect a rate hike on next week’s Federal Reserve meeting, the additional tightening steps could also be in danger should these tendencies continue. The German IFO index as among the positive surprises, boosting the Euro on Monday, but the British GDP reading also missed expectations, with only the Eurozone inflation number providing evidence of growth.

Technical Corner

S&P 500, 4-hour Chart Analysis

The S&P 500 finished the week slightly lower following the negative GDP surprise, but the “election-gap” is still well below the current levels. As the strong rally in the NASDAQ couldn’t carry the index above its prior high, it seems likely that it will test the 2355 level in the coming days. The long-term picture remains bullish despite the current weakness, and with strong support zones found near 2332 and just below the 2300 level.

Key Economic Releases of the Week

Day Country Release Actual Expected Previous
Monday GERMANY IFO Business Climate 1.26 million 1.25 million 1.22 million
Monday CANADA Wholesale Sales (monthly) 1.22 million 1.25 million 1.30 million
Monday US FOMC’s Kashkari speaks 0.50% 0.50% 0.0%
Tuesday UK Public Sector Borrowing 1.50% 1.50% 1.50%
Tuesday US CB Consumer Confidence -1 million -2.2 million
Tuesday US New Home Sales 22.0 25.6 32.8
Wednesday AUSTRALIA CPI (quarterly) 244,000 241,000 234,000
Wednesday CANADA Core Retail Sales
Wednesday US Crude Oil Inventories 0.50% 0.60% 0.50%
Thursday JAPAN Monetary Policy Satement -0.10% -0.30% 1.70%
Thursday EUROZONE Base Interest Rate -3.6 million -1.1 million -1 million
Thursday EUROZONE Monetary Policy Satement
Thursday US Core Durable Goods 0 0 0
Thursday US Initial Jobless Claims (weekly)
Thursday US UOM Consumer Sentiment -0.20% 0.40% 0.50%
Friday UK Prelim GDP 257,000 241,000 244,000
Friday GERMANY Retail Sales 0.30% 0.40% 0.60%
Friday US Advance GDP 0.10% 0.10% 1.80%

 

The Story of the Week: Volatility and Short-Interest Near Record Lows on Wall Street

 

Volatility minimums and market tops in the S&P 500

The Volatility Index (VIX) which is one of the simplest measures measuring fear among investors is close to its multi-decade lows. Several commentators draw the conclusion that this has to mean that investors are too bullish, and participants are all in on the long side, so a market decline is inevitable. While the logic might be intriguing, and, in fact, several other measures point to a way overvalued market in the US, don’t fall into the trap of this simple conclusion. Looking at the history of the VIX, we can see that it did a poor job in forecasting the previous two bear markets, and you could even argue that according to this indicator, we are still in for years and years of advances.

On another note, short interest is also hitting record lows, as bears seemingly capitulated after 8-years of gains, and this week’s post-French-election euphoria delivered another blow for the remaining short sellers. The $1 million dollar question is, of course, that are these extremes any indication of a long-term top or not? The correct answer is the usual maybe… Trying to find the “ultimate indicator” (look at this great article on the infamous Hindenburg Omen) is generally a bad idea, but every once in a while all indicators will nail the top. This doesn’t mean that the current overvaluation and these signs of capitulation together shouldn’t be taken seriously, but using more robust methods, like trend analysis should be your primary tools, even if they won’t point out the exact tops and bottoms.

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