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Analysis

The Week in Review: The Start of Something Big or Just a Blip?

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Market Recap

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Asset Current Value WeeklyChange
S&P 500 2344 -1.44%
DAX 12064 -0.55%
WTI Crude Oil 48.10 -1.39%
GOLD 1243.50 1.07%
Bitcoin 926 -13.57%
EUR/USD 1.0798 0.56%

 

The question in the title is probably the most popular one this weekend among traders. Stock markets concluded a strange period, with some of the most important indices registering their worst week in 6 months. Seemingly this was due to the political turmoil concerning a controversial new healthcare bill pushed by the new US administration and, above all, Donald Trump. The reality is that it’s probably just the trigger that the overbought market needed to enter a much-needed correction after the furious rally that ensued following the US election. The following chart shows just how extraordinary the last few months were for global stocks.

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The leading indices since the US election, Comparison Chart (% gains)

Whether or not this correction will cut a meaningful slice out of the lofty profits of the previous period is yet to be seen, but there are signs that we might have at least a sizeable decline in our hand. Some important trend-lines have been broken on the charts of the major indices, as the momentum of the rally faded away. That said, the dominant long-term trends are still intact, so screaming bear market is definitely premature, even if the recent highs turn out to mark THE top of the now 8-year long bull run.

Economic numbers were mostly positive globally, especially in the UK, and the Pound was among the winners of the week thanks to that. The sad terror attack in London also made headlines, but the markets barely budged in the aftermath, pointing to a rather interesting “terror-fatigue” among traders. The weakness of oil continues to weigh on the energy segment, as the crucial shift towards shale oil re-writes the rules of the most important commodity’s market.

Technical Corner

This week we take a look at the stock index that is in the heart of the current global rally, the Nasdaq. The technology benchmark has been spearheading the advance in the last few weeks, with several giants like Apple and Google pulling the index to new all-time highs. That’s right, the Nasdaq finally left behind the levels of the gargantuan bubble of the 90’s, and it’s now ramping into uncharted territory, with the help of free money freshly “printed” by central banks, of course.

NASDAQ 100, Daily Chart

The dominant pattern has been a strong rising channel since the US election, but that has been broken last week. The benchmark “crawled” along the lower boundary of the channel towards the end of the week, as global markets consolidated.

This brake might turn out to be a game changer for stocks, but there are several support zones below that could ignite a rally to new highs again. The MACD is actually getting close to neutral territory, although it’s still on a sell signal. The strength of the bull market shouldn’t be underestimated here, but for the first time this year, meaningful cracks have appeared on the surface of the rally.

The Story of the Week: Liquidity Illusion

Liquidity crashes on the 21st of March after a 1% decline in the S&P 500 (black line), source: Nanex

One of the most interesting aspects of today’s rigged market is that on the major stock exchanges there SEEMS to be an infinite amount of liquidity, but still, flash crashes occur with disturbing frequency. In mere seconds, theoretically stable assets can decline by double-digit percentages… How is that possible if the trading robots (the “Algos”) are there all the time to provide liquidity? This Tuesday’s “large” decline gives us a clue (see the chart above).

The robots simply left the field on the first sign of trouble, leaving smaller players alone without substantial liquidity. And this was only a small correction that is barely visible on the long-term charts, mind you. One can only speculate what would happen in the event of a more substantial negative mood in this algo-driven environment. The takeaway is that risk is always there — just because the market is stable and seemingly liquid, risk management is never to be forgotten by the individual investor.

Key Economic Releases of the Week

Day Country Release Actual Expected Previous
Monday CANADA Wholesale Sales (monthly) 3.30% 0.30% 0.30%
Tuesday UK CPI (annualized) 2.30% 2.10% 1.80%
Tuesday CANADA Core Retail Sales (monthly) 1.70% 1.30% -0.50%
Tuesday GLOBAL GDT Price Index (bi-weekly) 1.70%   -6.30%
Wednesday US Existing Home Sales 5.5 million 5.59 million 5.69 million
Wednesday US Crude Oil Inventories 5.0 million 1.9 million -0.2 million
Thursday UK Retail Sales (monthly) 1.40% 0.40% -0.50%
Friday EUROZONE Manufacturing PMI 56.2 55.3 55.4
Friday EUROZONE Services PMI 56.5 55.4 55.5
Friday CANADA CPI (monthly) 0.20% 0.20% 0.90%
Friday US Core Durable Orders (monthly) 0.40% 0.50% 0
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Analysis

Long-Term Analysis of the Silver Market

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Silver

The silver market has once again caught investors’ interest as the price is nearing areas not seen since late 2008.

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2017 started at a low point for silver, and it seems it will end the year that way as well, meaning investors who bought at the beginning of the year haven’t suffered nor gained much.

This doesn’t mean, however, that the price hasn’t moved during the year. After the low start of the year, silver quickly tacked on about 18% to a top of $17.50 per ounce.

In terms of fundamentals in the silver market, things look a bit complicated for 2018. There are multiple forces pulling in different directions for the price of silver going forward:

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Positives

  • A sharp stock market correction can be expected to occur some time in 2018. Most likely, this will happen sooner rather than later. Stock market crashes always trigger a flight to safety, meaning gold, silver, and quite possibly bitcoin, can benefit.
  • We are seeing signs that inflation may be starting to rise again, although this is not confirmed yet. Rising inflation is always good for precious metals.
  • If the US federal budget deficit widens as a result of the new tax reform, the US dollar may suffer as a consequence. Goldman Sachs put out a note to investors in November 2017 saying that the US debt is “on track” to reach an “unsustainable” level in coming years. Fed Chair Janet Yellen has also said about the US debt that it is “the type of thing that should keep people awake at night.” Rising debt levels creates uncertainty about the economy, which is generally good for gold and silver.

Negatives

  • Central banks around the world seem committed to raise interest rates in 2018. Rising interest rates are bad for precious metals because it would make it more attractive to put money in the bank.
  • The cryptocurrency bull market is on track to continue, diverting attention and capital away from precious metals as a traditional store of value. However, this one is uncertain, as it may also be considered a positive in the way that the rise of cryptocurrencies brings the inflationary and unsustainable nature of fiat currencies into focus.
  • The US dollar may have hit a bottom in 2017 and trade higher compared to other major fiat currencies going into 2018. A stronger dollar is always bad for precious metals, which are priced in dollars.

Silver chart

When looking at the chart, we can see that silver is back down to were it started the year, which coincides with a major support area where it has turned several times in the past few years.

From a technical perspective, silver has been trading in a triangle pattern on the longer-term weekly chart, with the price now trading very near the lower end of the triangle, adding confluence to our bias that silver will trade up from here.

Silver failed to live up to our prediction from early 2017, and is now even trading well below the level from that time.

A low price by any measure combined with two major technical support levels adds confidence to our trade and makes silver a low risk and potentially high reward trade for 2018.

Depending on your own strategy and investment style, you may want to wait for the price to break out from the current triangle pattern it has been trading in for the past year and a half. You would then give up some of the potential return for an even safer trade. After that, major resistance is found around $17.50 and $18, with lots of upside potential if we can finally break through those levels.

Featured image from Pixabay.

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Analysis

Long-Term Cryptocurrency Analysis: Look Out Below?

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After last week’s observation that a major top is in or near in the segment, the Bitcoin surge continued for almost a week, with Thursday’s wild session taking the coin as high as $19,000 (the article uses Bitstamp prices) on some exchanges. While the currency already pulled back by more than 20% the long-term picture is still extremely overbought and a much deeper correction is likely in the coming weeks.

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BTC spiked below $13,000 today, violating the primary weak support at $13,300, with further levels now at $11,300, $10,000 and $9000, but stronger support only found at $8200 and $7700. Next week’s futures launch could cause another jump in trading activity, and volatility is expected to remain very high amid the likely correction.

BTC/USD, Daily Chart Analysis

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While not all altcoins participated in the, supposedly, last part of the rally, IOTA, Monero, and towards the end of the week Litecoin, also stretched above all conventional targets with IOTA also turning exponential after a deal with Microsoft. The coin exploded by more than 350% before entering an initial sharp correction, breaking the steepest short-term uptrend. Strong support is only found at $3 and $1.5, but potential Fibonacci support is at $2.35.

IOT/USD, Daily Chart Analysis

Let’s see how the long-term charts of the other altcoins look after the crazy week.

(more…)

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Analysis

Daily Analysis: Stocks Rise on Mixed Jobs Report, Bank gains as Bitcoin Wobbles

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Friday Market Recap

Asset Current Value Daily Change
S&P 500 2651 0.45%
DAX 13153 0.85%
WTI Crude Oil 57.34 1.12%
GOLD 1250.00 0.21%
Bitcoin 15775 -4.10%
EUR/USD 1.1774 -0.01%

The “Week of Bitcoin” ended on a positive note regarding traditional financial assets, with several bullish catalysts helping the recently struggling indices in Europe and the US. Asia settled down after a period of pronounced weakness, the finalized framework of the new regulation of the European banking sector favored the banks, end the US employment report was mixed enough but not too bad to help equities. While these don’t sound that bullish from a long-term perspective, in the world of central bank dependency, a sluggish growth environment fuels the yield-seeking rally in stocks.

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S&P 500 at All-Time Highs, 4-Hour Chart Analysis

Short-term rates declined thanks to the slightly negative economic news, and as Trump’s decision regarding Jerusalem sparked widespread protests in the Middle East, gold and long-dated treasuries rebounded, as a sign of moderate safe-haven flows. The VIX shrugged off the geopolitical fears and stock volatility plunged back near its recent record lows, while the DOW and the S&P 500 finished on new all-time closing highs, even as the intraday highs from Monday are still ahead of the benchmarks.

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Last night’s Brexit deal caused a “sell the news” dip in the Great British Pound even amid the risk-on sentiment, as the currency lost ground compared to its major counterparts, while the rest of the forex complex finished a choppy session close to unchanged on the eventful day.

EUR/GBP, 4-Hour Chart Analysis

Cryptocurrencies

All eyes were still on Bitcoin and the major altcoins as trading activity skyrocketed in the cryptocurrency segment thanks to the exponential rally and the sharp correction in the market of BTC. The coin hit a new all-time high on all exchanges, albeit at widely diverging levels, as several exchanges broke under the weight of the record volumes.

Bitcoin fell as much as $3000, more than 20% top-to-bottom, but as we speak the currency is regaining momentum and we might be in for another interesting weekend in the segment. While it seems very likely that a sharp correction is just around the corner, picking a top in BTC is not an easy feat, even as the momentum indicators are off the charts.

BTC/USD, 4-Hour Chart Analysis

Altcoins benefited from the early sell-off in Bitcoin, and Litecoin even rallied to a fresh all-time high, while the other majors rose significantly as well.  Although the currency and the segment as a whole are stretched by all measures, and the risks of a “fake-out” our high, speculative flows could propel another rally in LTC.

LTC/USD, 4-Hour Chart Analysis

Key Economic Releases on Friday

Time, CET Country Release Actual Expected Previous
1:50 JAPAN GDP 0.6% 0.4% 0.3%
Tent. CHINA Trade Balance 264 bill 231 bill 254 bill
11:30 UK Manufacturing Production 0.1% 0.1% 0.7%
15:30 US Hourly Earnings 0.2% 0.3% 0.0%
15:30 US Non Farm Payrolls 228,000 198,000 261,000

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