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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%

 

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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.

 

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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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Analysis

Crypto Update: Coins Hit 6-Week Highs as Rally Continues

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Bullish price action is still dominant in the cryptocurrency segment today, despite the recent lofty gains, and the overbought short-term picture in the ace of most of the majors. Correlations continue to break down, as more and more coins are in confirmed uptrends, with the total value of the market hitting $400 billion for the first time since early March.

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The top digital currencies are mixed today in the generally positive environment, with Bitcoin Cash, IOTA, Ethereum Classic, Dash, and Monero showing relative strength, in the face of the slightly overbought short-term momentum readings. While this is not the best moment to enter new short-term trades with regards to the majority of the coins, the long-term setup favors further gains in the coming weeks.

BTC/USD, 4-Hour Chart Analysis

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Altcoins have been leading the market higher in the last couple of weeks, and Bitcoin is still stuck below the $9000 level, as it continues to slightly lag behind from a short-term perspective. The coin ran into the strong resistance zone between $9000 and $9200 after breaking out of the broad declining trend.

Now a pullback is likely, given the slight weakness, with a possible test of the prior swing high at $8400. In case of a bullish move, the next target is at $10,000, and long-term investors should still add to their holdings on the short-term dips.

ETH/USD, 4-Hour Chart Analysis

Ethereum kept on creeping higher to marginal no rally highs in the last couple of days, nearing the $650 level despite the overbought short-term picture. Short-term traders should still not enter new positions here until the overbought readings are cleared, while long-term investors could still add to their holdings during the pullbacks.  Resistance zones are ahead near $735 and $780, while primary support is between $555 and $575.

Altcoins Diverging but Bulls Remain in Control

XRP/USDT, 4-Hour Chart Analysis

As we noted, the correlation between the coins is lower than during the downswing, and that confirms the bullish price action in the segment. Ripple is trading in a consolidation pattern near the $0.84 level, and although the overbought momentum readings are not yet fully cleared, the trend is clearly bullish and a new short-term buy signal is likely in the coming days.

Among the other recent leaders, IOTA triggered short-term sell signal, reaching the strong resistance zone near $2.2. EOS, Stellar, Cardano, and NEO are consolidating their gains, while Dash, Monero, and ETC are trading slightly above last week’s highs, but traders shouldn’t chase them higher here, as a short-term correction is likely soon.

Stay tuned for our detailed long-term technical analysis coming out later on today.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

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

Bitcoin and Gold are Trading Inversely With One Another

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Advocates of bitcoin often compare the digital currency to gold for its finite supply and store-of-value characteristics. While BTC hasn’t come close to dethroning gold as the world’s most trusted safe-haven, it has steadily outperformed bullion amid the latest recovery. This has some people asking whether virtual currencies are eating away into gold’s demand.

Inverse Relationship

Strategists have identified a strong inverse trading pattern between gold and bullion stretching all the way back to the fall, right around the time that cryptocurrencies rebounded from a China-induced selloff. As bitcoin and other cryptos surged, gold experienced a steep fall from a high above $1,351 in early September to a low of $1,241 just three months later.

As bitcoin cooled down in the new year, gold resumed its upward trajectory and eventually peaked near $1,370 at the end of January.

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Below are the charting patterns for gold and bitcoin going back one full year.

The latest divergence is easy to spot. Since hitting a settlement high of $1,360 on Apr. 11, bullion has declined 2%. Over the same period, bitcoin surged 27%.

Bitcoin’s oversized percentage move relative to gold is a reflection of underlying volatility in the cryptocurrency market. Crypto assets as a whole are but a tiny fraction of gold’s $7.8 trillion worth. That said, the digital asset class peaked above $830 billion earlier this year, making the case for a trillion-dollar market more believable.

Systemic Risks

Proponents of bitcoin’s safe-haven status generally agree that the cryptocurrency is well suited to outperform the market during periods of heightened economic and political instability. This is generally believed to be the period in which gold prices thrive. However, unlike gold, bitcoin has also outperformed during periods of relative calm.

The second-largest bull market in history started off as a positive for gold as prices crossed $1,900 a troy ounce in 2011. However, bullion hasn’t been able to hit anywhere near those levels ever since. Bitcoin, on the other hand, has been the world’s best-performing currency (if one calls it that) in six of the past eight years.

Although the charts seem to indicate an inverse relationship between gold and bitcoin, it’s much more difficult to prove that investors are swapping one asset for the other at any given time. There’s some anecdotal evidence to suggest this is the case but a lack of trading data makes it difficult to conclude definitively one way or the other.

Supply and demand factors must also be weighed in analyzing the price trajectory of both assets. Gold’s total supply is increasing by an average of less than 2% annually, according to the World Gold Council. At the other end of the spectrum, the final bitcoin is expected to be mined in 2140, with total supplies engineered to decline until that date.

On the demand side, gold has been losing its allure as investors continued to pile into stocks. In 2017, appetite for bullion fell by 7%, with gold-backed ETFs plunging to one-third of the previous year’s demand. On the other hand, bitcoin’s demand has skyrocketed as more traders noticed its meteoric rise.

One area in which bitcoin has an advantage over gold is non-correlation. As the above examples clearly demonstrate, BTC is not correlated with the broader market. Gold, on the other hand, is influenced by risk-off sentiment, geopolitics, interest rates and inflation, among others. At present, these factors may play into the hands of bullion as investors prepare for the new business cycle.

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.

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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4.5 stars on average, based on 343 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Analysis

Technical Analysis: Bitcoin Tests $9000 as Altcoins Pull Back after Strong Rally

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The cryptocurrency segment is in a short-term correction after a great week that saw several key resistance levels fall, as the major coins kept up the bullish momentum and hit new rally highs after a shallow correction. Ethereum and the smaller altcoins continued to outperform Bitcoin on the way higher in the last couple of days, but today, Bitcoin is holding up relatively well amid the pullback, indicating a slight change of behavior.

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BTC/USD, 4-Hour Chart Analysis

Bitcoin broke out of its lengthy declining trend, rallying quickly up to the key $9000-$9200 zone as expected, even though the momentum of the move has been relatively weak, and the coin failed to enter the zone, with the lower resistance line halting the advance, for now. The currency should remain above the declining trendline, but another short-term consolidation phase could be ahead as altcoins are likely entering a correction. Further resistance is ahead at $10,000 and $10,500 while support is found near $8400 and $7800.

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ETH/USD, 4-Hour Chart Analysis

Ethereum hit the $625 level as we expected and it also broke out of its declining trend, after confirming a new short-term advance earlier on this week. Traders shouldn’t enter new positions here, as the coin is stretched from a short-term perspective, while investors could still add to their holdings on the pullbacks. Support is now found between $555 and $575, and below that zone at $500, while strong resistance is ahead between $625 and $645 and near $740.

(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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