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Weekly Analysis: Bitcoin Takes on $2000 as Stocks Hit by Trump-Scandal

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Donald Trump

Weekly Recap

Asset Current Value Weekly Change
S&P 500 2380 -0.45%
DAX 12638 -1.22%
WTI Crude Oil 50.48 4.77%
GOLD 1255.00 2.11%
Bitcoin 1985 13.43%
EUR/USD 1.1205 2.74%

 

Global stocks had their most volatile days since the US election in November, as the recent scandal of the new US president sparked a strong sell-off on Wednesday. The major indices recovered well after the slump, although the previously leading NASDAQ lagged the other benchmarks, hinting on a change in the underlying trends. European and Asian equities followed the US market lower, with Japanese stocks being hit hard by the renewed safe-haven demand for the Yen. The late week bounce was weak in the Nikkei, the DAX, and the EUROSTOXX 50, while the S&P 500 was helped by the relative strength of the energy sector.

The Chinese market traded sideways during the global correction, but it failed to regain its previous losses, despite being among the stronger regions globally. Commodities head a mostly positive week, even as the mid-week decline affected the risk-on part of the segment. Gold finished above the $1250 level as it got a boost from the negative sentiment, while crude oil surged above $50, as the OPEC and Russia agreed to extend the previous production cut by 9 months, and the global market showed signs of stabilization. The USD has been the weakest major currency amid the political turmoil in the US, while the Yen, the Euro, and the Swiss Franc gained significant ground during the week. Commodity currencies also rallied thanks to the Dollar slump, while the Pound finished above the 1.30 level for the first time since last September.

 

US Dollar Index, Daily Chart Analysis

Cryptocurrencies

The coins experienced yet another rotation-week, as NEM, Bitcoin and Ethereum took over the leadership of the market from Ripple in the second half of the week, as BTC crossed the $2000 mark for the first time in history, while ETH jumped by around 50%. Ethereum caught up with XRP regarding market capitalization while NEM doubled in value, pushing Litecoin lower in the list. LTC got through a deep correction and it currently trades slightly below the $30 level, after getting close to $20 during the week. Ethereum Classic, Dash, and Monero also climbed higher, while Stellar was relatively stable after 2 weeks of crazy trading.

Ripple, 4-Hour Chart Analysis

Economic Numbers

Economic numbers remained mixed at best, especially in the US, where the housing market provided a couple of negative surprises, while industrial production was better than expected, and the Philly Fed index showed an encouraging reading. The British economy showed signs of life after a bearish period, and that helped the local assets against their global peers, with the CPI index and Retail Sales both coming in way above the consensus estimate. The other European releases were generally in line with expectations, but growth remains slow in the Eurozone.

Technical Corner

S&P 500, 4-hour Chart Analysis

The S&P 500 gained relative strength this week, as the broad and deep correction rearranged the US market, amid the surge in volatility. The extended topping process ended with a quick move lower with strong momentum. The decline was led by the NASDAQ, with most of the major global benchmarks losing anywhere between 2-3%. The S&P 500 spiked below the key support zone between 2350-2355 before recovering the majority of its losses and finishing the week near 2380. The short-term trend is now neutral after the benchmark moved out of its rising trend channel.

Key Economic Releases of the Week

Day Country Release Actual Expected Previous
Monday CHINA Industrial Production (yearly) 6.5% 7.0% 7.6%
Monday SWITZERLAND PPI Index -0.2% 0.00% 0.10%
Monday US ES Manufacturing Index -1.0 7.6 5.2
Tuesday AUSTRALIA Montery Meeting Minutes
Tuesday UK CPI Index 2.7% 2.6% 2.3%
Tuesday EUROZONE Flash GDP 0.50% 0.50% 0.50%
Tuesday GERMANY ZEW Economic Sentiment 20.6 22.3 19.5
Tuesday US Building Permits 1.23 mill 1.27 mill 1.27 mill
Tuesday US Housing Starts 1.17 mill 1.26 mill 1.20 mill
Tuesday US Industrial Production 1.0% 0.4% 0.4%
Wednesday UK Average Earnings 2.4% 2.4% 2.3%
Wednesday UK Unemployment Rate 4.6% 4.7% 4.7%
Wednesday EUROZONE Final CPI 1.90% 1.90% 1.90%
Wednesday CANADA Manufacturing Sales 1.00% 1.10% -0.20%
Wednesday US Crude Oil Inventories -1.8% -2.5 mill -5.2 mill
Thursday JAPAN Prelim GDP 0.5% 0.4% 0.3%
Thursday AUSTRALIA Employment Change 37,400 4,500 60,000
Thursday AUSTRALIA Unemployment Rate 5.7% 5.9% 5.9%
Thursday UK Retail Sales 2.3% 1.2% -1.8%
Thursday US Initial Jobless Claims 232,000 240,000 236,000
Thursday US Philly Fed Manufacturing 38.8 18.9 22.0
Friday CANADA CPI Index 0.4% 0.5% 0.2%
Friday CANADA Core Retail Sales -0.20% 0.20% -0.10%

 

The Story of the Week: The OPEC Production Cut: A Tale of Unintended Consequences

 

The Change of the Cost Curve of US Shale Oil Producers (Source: Goldman Sachs)

Shale oil has been dramatically transforming the energy segment in recent years, but how much so? Ecological impacts aside, the fracking technology went from an interesting alternative to deep-water and other extremely costly oil sources, to being a threat to the dominance of the OPEC. The chart above shows how the US producers lowered their cumulative break-even curve to the point where most of the hypothetical production of the shale players would be profitable between $50 and $60 per barrel. Compared that to the fact that 3 years ago there was virtually no profitable shale production below $80 per barrel.

Now, this is where it gets interesting. Last years crude oil rally topped out, guess what, near $55 per barrel, which is eerily close to the estimated breakeven of the bulk of the shale production. And that’s not a coincidence; most analysts agree that shale-oil, given its flexible nature, will do just this— cap the price of crude oil, while also limiting the profits of the traditional oil producers. Sure enough, the OPEC just this week announced the extension of a production cut that was supposed to stabilize the market and help a rebound in prices.

But what are the consequences of the deal? Long story short, it leads to a slow decline in the market share of the cartel, while encouraging shale producers to innovate even more and push this invisible price-cap even lower. And to go back to the root of the historic decline in the price of oil in 2015, it was none other than Saudi Arabia that flooded the market with cheap oil, in an attempt to knock US shale players out. What really happened, is that the slowing of the global demand growth coupled with the “forced” shale revolution brought about a new era for the whole energy complex.

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 321 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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Analysis

Ethereum’s Tumble:  ICOs Aren’t The Problem

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Trying to come up with a rational explanation for crypto price movements is a thankless task. Sure, there are several attempts being made by quant jocks to develop a model for valuing coins and tokens.  Most of these that I have reviewed suggest that prices undervalue both the underlying asset or the eventual demand.

In other words, crypto prices are cheap: what a surprise.

This bit of wisdom may be of some comfort to committed long term investors, but it hasn’t translated into higher market prices. A good example of this is Ether. Over the past six months, while Bitcoin has been treading water (down 7%), the price of Ether has been cut in half.  This altcoin was the topic of one of my recent articles called: Has Ethereum Lost It’s Cache?

The essence of this article was to point out how Ethereum, the platform preferred by 75%-80% of all ICOs, was suffering from investor indifference.  When you measure the activity of the top 100 tokens according to CoinMarketCap.com, the US dollar value of 9 of the top 10 most actively traded amounted to an average of $14,000 over the previous 24 hours.  Please keep in mind, trading activity in ETH over the same 24 hour period amounted to $1.8 billion USD.

Bloomberg Speak

One of the more interesting contradictions to my research into Ethereum’s plight comes from an article originating from a highly respected source: Bloomberg News.  The headline reads: “Ether Tumbles as Concern Increases That ICOs Are Cashing Out”.  It is totally defies the data to believe that every ICO cashing out when there is almost no volume to confirm this claim.

Quoting from an August 13th article:

Initial coin offerings using the Ethereum blockchain are seen as one of the main catalysts for sending Ether’s price surging last year. Now they’re being blamed for its decline.

It is quite true that initial coin offerings using the Ethereum blockchain was a catalyst for sending Ether’s price surging last year. It gave investors a reason to buy Ether even if they didn’t tell an ICO from a UFO. But are ICOs the real blame for both the good and the bad of Ethereum price?  I will step aside and let you be the judge.

For starters it is important to remember that ICOs raised $2.4 billion last year while ETH value appreciated almost $70 billion. The concept of ICOs may have fueled blind speculation but the math tells us that real demand was much less.

As for taking the blame for falling ETH prices, consider this notion. At its peak in January ETH was valued at $133 billion.  Currently that value is $100 billion+ lower than just eights months ago.

Using the data from ICOWatchList.com, since the beginning of 2017 ICOs have raised a total of $8.5 billion.  The statistical experts claim the Ethereum platform was used by between 80%-83% of all ICOs, thus reducing the $8.5 billion number to $5.7 billion.  

There is no question that ICOs influenced ETH speculators but that doesn’t begin to explain the more than $600 billion in aggregate losses for all crypto assets.   

Criticism Of Startup Managements

Critics claim that ICOs give startups the ability to raise lots of capital but they are proving weak in management on the funds once they are in their crypto wallet.  There is a certain validity to this since the number of founders with deep experience as CEOs and CFOs is pretty limited. But how can anyone separate insider selling activity from all other volume?

Research website Santiment, which compiles a selection of Ethereum-based projects, estimates startups have spent over 110,000 Ether in the past 30 days. At current prices that amounts to about $33 million.  For sake of discussion, let’s assume this high rate of token liquidation took place each and every month this year. Then use and average ETH price of $700 and that brings the total to $616 million.

There is no question that ICO sellers have contributed to the decline in ETH.  It would even be fair to call it a catalyst that created fear of losing all (FOLA).  Now if we could only quantify fear with an index like the VIX used by stock investors, we would see the major cause of the decline.

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 97 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

Commodity Update: Wheat Not Yet Out of the Woods

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Wheat (WHEAT/USD) is up 29.12% year-to-date as the market came to life early this year. The successful defense of a key support level attracted investors who were staying on the sidelines for years while waiting for a tradeable bottom. This ignited a powerful rally that saw the pair generate volume that’s never been seen in over 15 years. As a result, many investors believe that Wheat may have finally reversed its trend.

In the midst of the bullish rally, it appears that bears are pulling the biggest trick that’s up their sleeve. In this article, we explore why Wheat is not yet out of the woods.

Premature Reversal for Wheat

A quick look at the daily and weekly charts reveals that the commodity appears to have broken out of a cup and handle pattern. From a short-term perspective, the market registered a higher low of $3.908 in December 2017. This gave bulls the confidence to stage a massive rally. The rally eradicated resistance of $5.00 in July 2018 with colossal volume.

Weekly chart of Wheat

The price action has led many to believe that the multi-year downtrend is over. But what if it isn’t?    

Major Roadblocks Ahead

A long-term view of the commodity reveals that it’s still in a downtrend. The market’s inability to close above $5.50 on the weekly and monthly charts is a signal that bears are not yet ready to hand over the keys to the kingdom. They are fighting back and so far, it seems that they have the upper hand.

Monthly chart of Wheat

Wheat is not reversing the trend as long as it respects the long-term resistance. This trendline has existed for 10 years and it is responsible for the commodity’s multi-year downtrend. From this perspective, it is easy to see that the pair continues to post lower highs and a lower low, which is the textbook definition of a downtrend.

Wheat still in a downtrend

Projected Movements

It’s not gloom and doom for bulls however. Even though a major resistance is staring down at them, they might still be able to come out on top. Keep in mind, bulls posted a record-shattering volume in July when Wheat went above $5.00. That means $5.00 has now become a key support level. It might just be strong enough to ignite a new rally and finally take out the long-term resistance.

Possible movements of Wheat

Otherwise, the record-breaking volume would work against bulls. All of those who bought above $5.00 are most likely using the support as a stop loss. Breach of this support would ignite a selling frenzy that can drive the market to even lower levels.

It is very possible that Wheat could capitulate during this plummet. When it does, there will be a long-term support where bulls can stage a rally to break out of the large falling wedge on the monthly chart.

Bottom Line

Wheat’s recent move above $5.00 with massive volume has attracted a lot of investors. The market may look bullish but in reality, it needs to deal with a long-term resistance before it can reverse its trend. In other words, Wheat is not yet out of the woods.

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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3.6 stars on average, based on 223 rated postsKiril is a financial professional with 4+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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Analysis

Pre-Market: Turkey Back in the Crosshairs Amid Sanction Threats

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The “red-bar-green-bar-madness” continues in global stock markets, as after yesterday’s rally, today the major markets are all in the red once again. Emerging market woes are still feeding the bearish narrative, with the Turkish Lira being back in the center of attention. The currency which enjoyed a three-day relief rally slid lower following threats regarding further retaliatory US sanctions, should turkey keep Pastor Brunson in custody.

USD/TRY, 4-Hour Chart Analysis

The diplomatic troubles only add to the problems of the country, while also helping the rhetoric of the Turkish leadership that focuses on a western “attack” on the nation. With the vague budget plans in mind, the endgame for the Lira still seems ugly, even as at the current levels, strong Turkish companies can offer great bargains for a long-term investment portfolio.

DAX Index, 4-Hour Chart Analysis

The divergence between the US and the rest of the world seems to be getting wider by the day, as the Shanghai Composite closed on a fresh bear market low, while most of Asia is also stuck in short-term downtrends, while Europe is looking wounded too from a technical perspective. The main US indices, on the other hand, are still near their all-time highs, and today’s selloff is also just a small blip in the ongoing uptrend.

S&P 500, 4-Hour Chart Analysis

On a slightly negative note, the Nasdaq has been underperforming the broader market ever since Tencent’s earnings miss on Wednesday, and today, it’s also the worst performing benchmark on Wall Street in the wake of Nvidia’s (NVDA) lackluster guidance that came out yesterday after the closing bell.

Today’ session could still go either way in the US, as the overnight losses are moderate, and yesterday’s trade war optimism could still fuel a recovery in the worlds strongest stock market, even amid the deepening emerging market crisis.

Forex Markets Stable As Dollar Consolidates

Dollar Index (DXY), 4-Hour Chart Analysis

The Dollar is consolidating just below its recent 13-month highs, with the EUR/USD pair rebounding to 1.14, and the broader Dollar index settling down near 96.5. The reserve currency is still clearly in a rising trend, and as the short-term overbought momentum readings are almost cleared, the rally could soon continue, especially if risk-off sentiment remains dominant outside of the US.

Copper Futures, 4-Hour Chart Analysis

Commodities are virtually unchanged before the US open, with gold still hovering just above its 17-month low near the $1185 level, crude oil being stuck near $65 per barrel regarding the WTI contract, while copper trying to hold its ground after the recent key breakdown.

Dr. Copper is still signaling troubles ahead for China and the global economy, as although the commodity outperformed today, it’s clearly below the break-down level near $2.7, and the downtrend will likely continue in the coming weeks.

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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4.6 stars on average, based on 321 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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