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

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Market Recap

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.

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
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

Stocks Go Nowhere Ahead of the Fed

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Global stock markets had a very quiet Tuesday, as traders took a step back before tomorrow much-awaited Fed rate decision. While most of the major indices finished the day virtually unchanged, risk assets gained ground in general, as investors sentiment improved following the slightly nervous Monday session.

DAX 30 Index Futures, 4-Hour Chart Analysis

European and Asian stocks were steadily holding on to last week’s gains, with even the Chinese market settling down with only slight losses, despite the country’s exit from the scheduled trade talks with the US.

On Wall Street, the Nasdaq and the Russell 2000 outperformed the Dow and the S&P 500, signaling a risk-on shift under-the-hood, even as the major indices traded in very narrow ranges in the low-volume low-volatility environment.

EUR/USD, 4-Hour Chart Analysis

Currencies had a much more active season, even as the major pairs didn’t experience real trending moves, before the central bank meeting. The EUR/USD pair, which has been in the center of attention for days finished with small gains after some sudden spikes in both directions, as traders tried to bet on tomorrow’s renewed guidance by the Fed.

In economic news, the US CB Consumer Confidence Index came in above expected at 138.2, a 17-year high, just shy of the all-time high set in 2000, right at the time of the peak of the Dot-Com bubble. On the other hand, the Case-Shiller Housing Price Index missed the already modest consensus estimate, with an only 5.9% yearly price increase, once again confirming the slowdown in the segment in the rising yield environment.

XHB (Homebuilder ETF), 4-Hour Chart Analysis

Shares in the sector are down by 20% on average compared to the January bull market high, and as Treasury yields in the US are still hitting multi-year or even decade-long highs across the yield curve, further pain could be ahead for bulls in the coming months.

That said, a dovish surprise tomorrow could set up a pullback in yields and a possible bounce in the sector, even as the general tightening trend will almost certainly persist for a while.

Rate Hike Near Certainty with All Eyes on the Fed’s Guidance

The odds of the third hike this year by the Fed are almost 100% for tomorrow, but even major changes, and sizeable surprises are possible, with regards to the economic guidance and the Central Bank’s preferred monetary as well.

2-Year US Treasury Yield, 4-Hour Chart Analysis

The US-China trade war could serve as a dovish excuse, despite its limited effects so far, while the US economy provided plenty of ammunition to hawks, such as strong growth, an uptick in some of the key inflation measures, and a tight labor market.

While the 2-Year Treasury yield failed to close at a new cycle high, the short-end of the curve is at a decade-long high, so a bigger surprise could lead to a very volatile afternoon session tomorrow.

Copper Futures, 4-Hour Chart Analysis

Commodities also had a mostly quiet and mixed session with WTI Crude oil slightly retreating off its 10-week high near $73 per barrel and gold holding on near the $1205 level, but copper experiencing more volatility and closing with muted losses after Chinese markets reopened.

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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Analysis

Ripple: One Thing That Doesn’t Make Sense

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If you are bored or just tired of reading about Washington politics, just come over to the crypto world.  But be warned, the headlines can be just as singularly focused and confusing as anything inside the beltway.  Like Ripple for example, it has had everybody talking for the last week. The coming week is likely to be no different. All eyes will be on XRP.

Ripple, of course, is the crypto force that offers its payment networks as settlement infrastructure technology to a growing number of major financial institutions such as UBS, Santander and UniCredit.

Using Ripple, banks can bypass the antiquated SWIFT system. This cuts transfer of international payments to a few seconds from something like three days.  That could save banks billions in fees.

Ripple’s XRP token has had it share of critics, some of which is reflected in XRP being one of the worst performing cryptos this year falling from $3.65 in March to $0.26 on September 13th.

Sudden About Face

Since then, everything has been uphill.  It started a few days ago when CNBC hosted Ripple’s Sagar Sarbhai.  The interview touted high speed xRapid as ready for commercial launch.  Sagar also presented a laundry list of 120 banks that were on board with its xCurrent software.

That interview lit a spark that resulted in a double in the price of XRP and grabbed the attention of just about everyone in the crypto community. Strong technical buy signals were flashing.  In addition announcing that two new banking clients (NCB of Saudi Arabia and PNC) had joined RippleNet, all other fingers were pointing to Sagar’s xRapid announcement.

Following all this comes the headline in Business Cloud website: RIPPLE CRYPTOCURRENCY TO HIT KEY $1 THRESHOLD, PREDICTS CEO Nigel Green, founder of deVere Group, the world’s largest independent financial advisory organization. If that weren’t bold enough, Green’s $1 prediction is for year-end.

Upcoming SWELL Conference Prompts Even More Speculation

There seems to be some real substance behind Sarbhai’s CNBC interview. On October 1-2, Ripple is hosting the SWELL event in San Francisco, CA. The event is meant to connect the world’s leading experts in policy, payments and technology for a proactive dialogue in global payments today.

The event will be packed with political literati including former President Clinton. It is easy to conclude that Ripple is geared up for a major news event. Speculation is that xRapid will be announced and given a date for launch.  When you consider that a keynote address from Bill Clinton could cost Ripple well over $100,000 why would they waste his star power on simple chit chat.

Looking Good

It is fair to say that recent news and the prospects for a potential bombshell announcement next put Ripple in as good a position as it has been in some time.  Who would ever sell XRP at this point? The Wall Street Journal reports that Jed McCaleb, one of the co-founders of both Ripple and Stellar, “has recently stepped up sales of billions of XRP tokens he is thought to own”.  Back in 2013 he owned 9 billion XRP tokens.

OK, so every once in awhile, every crypto entrepreneur needs to pay the rent, but this is more than chump change. To keep things in balance, McCaleb has not worked with Ripple for about five years and, under his lockup agreement, he is entitled to sell up to 750 million XRP annually once year five is passed.  That should be enough dough to pay just about anybody’s rent. Lately, however, the desire to get out of XRP has pushed beyond the lockup agreement.

Why Would Anyone Sell XRP?

With all the good news ahead and the long term outlook for Ripple never looking brighter, who wouldn’t want to own XRP?  This is even more curious given the depressed nature of the XRP price.

Everyone who owns an asset has the right to making independent decisions and there may be special things in McCaleb’s plan that factor into his urgency to sell.  However, there is a section in Investment Analysis 101 that says to ask lots of questions when founders and large inside owners are sellers.

One thing is obvious. After a thoroughly frustrating 2018, there are more reasons to own XRP than to be selling.

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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4.4 stars on average, based on 107 rated postsJames Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.




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Analysis

Long-Term Cryptocurrency Analysis: Bearish Trend Intact Despite Explosive Rally Attempts

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The negative trend in the cryptocurrency segment continues to be dominant, with almost all of the top coins trading below the structural support levels that were broken during the summer months. Bitcoin is still above the $5850 level, the last base support before last winter’s explosive speculative event, but Ethereum, Ripple, Litecoin, and the other main altcoins all continued relentlessly lower.

Most of the majors formed a bottom in August, even though Ethereum continued to lead the way lower amid the bleak sentiment and capital flight. Several oversold rally attempts already failed in the segment, leaving the long-term declining trends intact, with last week Ripple providing hope for bulls with its explosive move higher.

While some of the coins tried to follow Ripple higher, the development of a healthy leadership failed yet again, add our trend model continues to be overwhelmingly bearish from a long-term perspective. With that in mind, the short-term buy signals should still be treated cautiously by traders. The August lows are not in direct danger right now, and a more durable bottom might already be in, but a broader rally would be needed to confirm a trend change.

BTC/USD, Daily Chart Analysis

While BTC has been holding on relatively well during the summer months, in the past weeks, as the largest coin was hurt by selling related to large wallets. The coin failed to show bullish momentum despite its stability, and a break below the key long-term support zone near $5850 is still possible here.

Primary support is at $6275, and in the case of a breakdown below $5850, the next major support zone is found near $5000, while resistance is ahead at $7000, between $7200 and $7300, and in the $7650-$7800.

ETH/USD, Daily Chart Analysis

After spiking below $180 and forming a panic-bottom, Ethereum rallied up to $260, but due to the extent of the preceding decline, it didn’t reach the declining trendlines which dominated the market for several months. The coin has been leading the selloff in the segment, and now a re-test of the lows is once again likely, even if a more durable bottom is already in.

Short-term support is found at $200 and $180, while below the recent low, further zones are found near $160 and $130, with resistance zones ahead between $275 and$280, near $300, and in the $330-$335 zone.

(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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4.6 stars on average, based on 354 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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