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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: Post-Crash Oversold Bounce Ensues in Crypto-Land

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As Bitcoin plunged below $10,000 yesterday, nearing the crucial $9000 level, all of the majors followed the most valuable coin in the panic sell-off. Our trend model turned short-term neutral in most of the cases, while the long-term prospects also improved thanks to the deep and violent correction.

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Bitcoin itself already traded at slightly attractive levels, as it breached our first possible target for the correction, but we expect a lengthy bottoming process with a possible dip to the $8200 or $7650 supports.

As for the short-term, the oversold rally initiated from the lower boundary of the declining trend channel, and a choppy, hard-to-trade consolidation period is likely ahead that could last throughout the weekend. Strong overhead resistance is found at $13,000, likely capping the advance for now, while the $11,300 support/resistance level could also be in the focus in the coming sessions.

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BTC/USD, 4-Hour Chart Analysis

Altcoins

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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

The Crypto Correction: What You Need To Know

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In the short span of about 24 hours prices of cryptocurrencies have fallen like a stone. Investors have either given back or taken losses of sizable amounts. Measuring the one-day drop: bitcoin -21%, Ether -29%, Litecoin -29%.

From its December all time high near $20,000, bitcoin has given back more than $200 billion in value. This amounts to more than 80% of the companies on the New York Stock Exchange or Nasdaq. Even for those who have experience-trading crypto, the events of the last few days can challenge nerves.

What is the right plan of action? Possibly no plan at all, by that I mean sitting tight and doing nothing, could be the best plan. What ever you choose, the first thing to do is to shut down your computer and turn off CNBC. These are all entirely emotion driven groups and right now they are making loud negative headlines reminding us of quotes from JP Morgan CEO Jamie Dimon and Warren Buffett.

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The same sources are painting a dark case today. These are the very same folks that were gaga over crypto last year while prices were rising. Now these sources are quoting Warren Buffett who predicted with a high degree of confidence that cryptocurrencies will have a bad ending.

If you listen to Christopher Harvey, Head of Equity Strategy at Wells Fargo, you get an even more dire prediction. He recently appeared on CNBC stating that the cryptocurrency price correction could spill over into the overall stock market.

There is a rule of thumb on Wall Street. If you are right 51% of the time, you are considered an investment genius. This means most opinions are wrong at least half of the time. This could be the case with today’s crypto naysayers.

Prices And Business Fundamentals Don’t Always Match

The number of true experts in cryptocurrencies is small relative to the number of investors. That means there is more emotion than usual driving prices in both directions. It is this volatility that keeps certain investors on the sidelines.

But if you have done your research and have a view of the world in 2028 short-term volatility is not your enemy. Warren Buffett, the biggest crypto naysayer is a master of long term investing. During the 2008 financial crisis, when the world was close to the brink of financial disaster, Buffett was standing by with billions to loan Goldman Sachs charging an outrageous 10% rate of interest. There is a lesson for us here.

Don’t Get Distracted By Short Term Issues

Korea is a big market for crypto demand and, along with China has produced headlines threatening to close down cryptocurrency exchanges. I have not dealt directly with any of these so the analysis of others is necessary.

These folks point out the excessive price premiums as evidence of the behavior of bad actors in the game. So any action by governments to clean up the exchanges could produce a better experience for investors. And let us not forget cryptocurrencies are global. There are plenty of exchanges in the world that make markets.

Korea does not have a monopoly on bad actors. The exchange and lending platform Bitconnect, in recent days, announced that it is closing. The company was recently served with a cease and desist order. Ethereum founders had criticized the exchange for their practices that many believe were bordering on a Bernie Madoff style Ponzi scheme.

The Tipping Point Has Been Reached

The jury is no longer debating the verdict. Cryptocurrencies have become embedded in the global economy. According to Google’s Annual Report on Search Facts, bitcoin and cryptocurrencies were the second most important topic in the world during 2017.

Bitcoin is all about fast, anonymous, low cost movement of money anywhere on the planet. Those lofty goals have not yet been achieved but with tens of thousands of businesses now accepting bitcoin including some hefty Fortune 500 companies and with the Bitcoin Lightning Network coming on, bitcoin’s shortcomings are being addressed.

Bitcoin Futures: Acceptance Is Spreading

When I learned that bitcoin futures would be traded in the US by the CME and CBOE, the only question was how long it would be before other countries recognized the legitimacy of bitcoin futures. Well, it didn’t take long. The Hong Kong securities regulators, SFC issued a report on December 11th giving investors a green light.

Within less than a year futures contracts will be available on Ethereum and possibly others.

Ethereum: The Future Is Here

Ethereum has always had a more obtuse purpose. It was never intended as a medium of exchange like bitcoin. For what it is worth, Ethereum is less likely to be singled out by governments and central banks that fear loss of economic control.

Descriptions like decentralized blockchain platform offering smart contracts and driven by Ether require some time to appreciate. Ethereum is open sourced and applications oriented. You don’t need to understand the technology you only need to envision what it can be applied to.

Ethereum co-founder Steven Nerayoff tells us the number of Ethereum projects today is already ten times the number of last year. Here are just two examples.

Unilever

Unilever, the $52+billion food and packaged goods giant, is working on a blockchain based project to better manage its massive global supply chain. So far it is only being tested but consider the size: 10,000 Malawian tea farmers. And this is just the start of their massive corporate wide supply chain. Imagine what this will look like if Unilever starts to take things seriously: stay tuned.

On The Vanguard

Now the $5 trillion Vanguard group is getting the blockchain bug.  They are the investment industry’s low cost provider. Now they are embarking on test to apply blockchain technology for data sharing.

Caveat Emptor

The reality is the cryptocurrencies are embedded in the global economy and likely to grow dynamically for a long while. This doesn’t protect us from short-term events. That is why huge price corrections are so interesting. The Warren Buffett habit of always having deep cash reserves to pounce on opportunity when frightened investors run is a strategy that has worked well over multiple decades.

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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Analysis

Technical Analysis: Bitcoin Hits First Correction Target as Volatility Reigns Supreme

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The violent correction that created a full-on panic in the cryptocurrency segment continues to unfold in a rather orderly way from a technical standpoint, reflecting the extreme nature of the preceding rally. That said, the percentage losses in some of the coins are huge, and the collapse of Bitconnect accelerated the process, spreading uncertainty among investors, and sentiment quickly got bleak.

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Bitcoin remains in the center of attention, and the most valuable coin finally breached the $10,000 level today, causing another strong wave of liquidation in the majors, that could be the base of a more durable bottom, and a consolidation in the coming days after the crazy last couple of days.

The coin is now oversold from a short-term perspective, and although further losses are likely before the end of the cycle, given the still only neutral long-term momentum readings, a counter-trend move is possible in the coming days. Below, $9000, strong support levels are still found at $8200 and near $7650.

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BTC/USD, 4-Hour Chart Analysis

Altcoins got slaughtered in the two-day crash with Ripple leading the way lower, while Ethereum also lost its relative strength amid the broad sell-off and its recent trendline break. ETH got close to the next major support level at $740 during today’s move, and as the short-term momentum is now oversold, a bounce to the zone around $1000 could be ahead. We still expect the correction to continue in the token, as the long-term momentum remains overbought, with key support at $625 and near $575.

ETH/USD, 4-Hour Chart Analysis

Ripple fell as low as the $0.85 support level during the crash, and although the coin rebounded above $1 afterward, it remains 70% off its recent all-time highs. Long-term investors could already accumulate small positions on the short-term sell-offs, although the correction will likely continue, and a prolonged consolidation phase might also be ahead. Key support levels are now found at $0.85 and $0.68, while resistance is ahead at $1.25.

XRP/USDT, 4-Hour Chart Analysis

(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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