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Weekly Analysis: Deep Crypto-Correction amid the Central Bank Show

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Weekly Recap

Asset Current Value Weekly Change
S&P 500 2434 0.23%
DAX 12750 0.31%
WTI Crude Oil 44.68 -2.24%
GOLD 1256.00 -1.02%
Bitcoin 2565 -10.11%
EUR/USD 1.1195 -0.10%

Central banks and cryptocurrencies stole the show this week, as the Bank of England, The Bank of Japan, the SNB, and most importantly, the Federal Reserve all held their monetary meetings, while the coins went through a major correction that shook the dominance of Bitcoin.  The banks sent unusually mixed signals, with the Fed alone causing confusing reactions in the different assets classes. The BOE also shocked the market with a very hawkish vote, while the BOJ reacted to the recent strength of the Yen in the only way that it possibly could, reiterating its uber-easy policies

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Donald Trump continues to be under fire regarding his campaign’s Russian ties, but the market more or less ignores the scandal, even given the heavy media concentration. The flash-crash of the big tech names last Friday is something that is still making waves, as the NASDAQ remains technically wounded, and that could drag down global stocks in the coming week, despite the proximity of the all-time highs. The other major markets were generally flat, with the Japanese Nikkei outperforming in the second half of the week, as the Yen got weaker.

The Dollar’s rebound was all the rage in the fiat-currency world, although the Greenback ended the week on a negative note following the notoriously coming misses in the US economic indicators. Oil led the way lower for commodities lately, and the WTI contract is currently below $45 per barrel, while gold fell to $1250 and industrial commodities also remained under pressure.

WTI Crude Oil, 4-Hour Chart Analysis

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Cryptocurrencies

-30%. Almost all major coins registered losses near or above that level this week, and although most of them are back way higher, the shadow of the correction is still on the market and on traders. Bitcoin triggered the broad sell-off, although Ethereum was also ripe for a deeper decline according to the long-term picture. Our pick Litecoin emerged strongly from the move lower, as it catapulted to new all-time highs today, hitting our trading target in the process. Ethereum rebounded by $100 or 40% in two days, and it sits 10% below its all-time highs, with BTC being down by 15%. Ripple, NEM, and Monero are the current laggards, while Dash and Ethereum Classic are holding on above their break-out levels from last weekend. The total value of the coin market is also back above the $110 billion level after falling below the $100 billion mark.

Litecoin, 4-Hour Chart Analysis

Economic Numbers

Economic releases were negative concerning most of the major countries once again, with the US indicators disappointing across the board. The CPI index and retail sales both missed by a mile, and although the Fed remained hawkish in the face of the deterioration, the bond market tells a different story, with US yield hitting a seven-month low during the week.  Australia and Canada delivered some good numbers, with the Employment Report and Manufacturing Sales surprising on the upside respectively. European indicators were mixed, with the UK showing weakness (retail sales, employment) and the Eurozone inflation finally matching expectations.

Technical Corner

NASDAQ 100 Futures, 4-hour Chart Analysis

The NASDAQ remained in the centre of attention this week, after the tech giants flash-crashed on last Friday, which caused nervous trading throughout the period, even as central banks took centre stage. The benchmark also finished the week on a negative note, following the announcement of the acquisition of Whole Foods by Amazon. The index finished near the recent lows, and it might be ready to hit new short-term lows next week, and test the long-term trendline near 5600.

Key Economic Releases of the Week

Day Country Release Actual Expected Previous
Monday JAPAN PPI Index 2.10% 2.20% 2.10%
Monday US Federal Budget Balance -88.4 bill 182.4 bill 182.4 bill
Tuesday AUSTRALIA NAB Business Confidence 7 13
Tuesday UK CPI Index 2.9% 2.7% 2.7%
Tuesday GERMANY Zew Economic Sentiment 18.6 21.8 20.6
Tuesday US PPI Index 0.0% 0.1% 0.5%
Wednesday CHINA Industrial Production -0.20% -0.20% -0.10%
Wednesday UK Average Earnings 2.1% 2.4% 2.4%
Wednesday UK Unemployment Rate 6.4% 6.4% 6.5%
Wednesday US CPI Index -0.1% 0.3% 0.2%
Wednesday US Core Retail Sales -0.3% 0.2% 0.3%
Wednesday US Crude Oil Inventories -1.7 mill -2.3 mill 3.3 mill
Wednesday US Fed Interest Rate Decision 1.25% 1.25% 1%
Wednesday US Fed Monetary Statement
Wednesday EUROZONE ECB Monetary Statement
Thursday AUSTRALIA Employment Change 42,000 10,300 37,400
Thursday AUSTRALIA Unemployment Rate 5.5% 5.7% 5.7%
Thursday SWITZERLAND SNB Monetary Statement
Thursday UK BOE Monetary Statement
Thursday US Philly Fed Index 27.6 25.5 38.8
Thursday US Initial Jobless Claims 237,000 241,000 245,000
Thursday US Industrial Production 0.0% 0.2% 1.0%
Friday JAPAN Monetary Statement
Friday EUROZONE Final CPI 1.4% 1.4% 1.4%
Friday US Building Permits 1.17 mill 1.25 mill 1.23 mill
Friday US Housing Starts 1.09 mill 1.23 mill 1.17 mill
Friday US Prelim Consumer Sentiment 94.5 97.2 97.1

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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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4.7 stars on average, based on 99 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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3 Comments

3 Comments

  1. visiondream3

    June 17, 2017 at 6:23 pm

    Thanks for the litecoin input. Is it time to sell it yet? Is the rally losing steam?

    • Mate Cser

      June 17, 2017 at 11:08 pm

      Hi, I suggest closing a part of your position after this rally, and let some of it run further. Gradually exit the trade as LTC moves higher. It can still go higher but this way you protect your profits and it will psychologically be easier to get out before a correction.

      • visiondream3

        June 18, 2017 at 4:35 am

        Thanks Mate. Very valuable input. Keep up the excellent work you guys are doing.

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Analysis

Cryptocurrencies: Five Reasons Why The Worst Is Behind

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February 5, 2018 is the day when investor fear was replaced by greed. That marked the current bottom for cryptocurrency prices.  Simple enough to make this claim now that we have had a few good trading days.  But how do we know for sure that the worst is behind?

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Oh if there was a reliable way to measure fear and greed in this nascent crypto world. It could tells us emphatically when market tops and bottoms are occuring, we could make some real digital dough.  True, there are lots of tools that have been tried on traditional markets likes stocks and bonds.  But if these will truly work in crypto land remains to be proven.

Sometimes the most reliable barometer is nothing more complicated than “gut feel”.  Here is what feels encouraging when I apply this test.

The February 5th Bottom

Volatility has been a major feature in crypto trading since day one.  After better than a 7000% appreciation in Bitcoin and Ether in 2017, should a massive correction be a surprise? Between December of last year and February 5th, Bitcoin lost almost two thirds of its value while Ether dropped almost 50%.  We could go on listing every currency but you get the point.

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It this were the infamous Dutch tulip bubble of 1634 the carnage would have continued endlessly.  With crypto, investors collectively found value starting on February 5.  Since then, Bitcoin has gained 50% and Ether about 30%.  That has all taken place in a matter of a two weeks.

This is unprecedented.  When the dotcom price burst in February 2000 the Nasdaq began a 75% fall before hitting bottom in November.  It took fully 14 years before the Nasdaq fully recovered.

Running Scared Of Government

Many investors try to connect the stock market correction with the slide in the cryptocurrency markets.  That would be a mistake because the circumstances are quite different.

The crypto correction and frightening headlines coming from China and Korea about threatened government crackdowns had everything to do with investors heading for the sidelines. This is not to ignore the mechanical influences like the slow transaction speeds etc. But the minute the word government comes into the picture, the worst fears take over.

With the benefit of time, investors are slowly coming to the realization that no government regulation can effectively control ownership of cryptocurrencies. They can however, regulate the operation of exchanges and that is a good thing.  This offers the chance to clean up the bad practices, excessive fees and outright scams which have hurt the individual investor.  

Initial investor reaction to the Chinese and Korean government news reminds us of an important point.  There is no such thing as perfect information in the crypto market.  Even so called professional investors know very little.  The general public are price driven momentum players.  Even erroneous headlines move markets; facts take more time .  

A  Pickup In ICOs

It doesn’t matter if you are dealing with stocks bonds or Bitcoin, when investors are willing to put money in the most speculative sectors, that is a sign of market strength.  Recently we wrote an article noting a precipitous drop in capital raised from ICOs during January.

We used data compiled by ICO Watchlist.  These folks are the only ones collecting data and their numbers don’t alway agree.  But we are using their date consistently for comparative purposes.

From a monthly average of about $400 million during the four peak months of 2017,  January dropped to just $76 million.  Easy to understand, investors lost their confidence in high risk instruments.

Things are beginning to change. With the recovery of major currencies the ICO market is showing new life.  With more than a week left in the month, ICOs have raised over $176 million, according to ICO Watchlist.

These figures exclude the current ICO underway for messaging app Telegram that claims it has raised $850 million thus far in a $2 billion total effort.  If these initial reports prove accurate it would be the largest ICO on record and create bold headlines.

More Hedge Funds Are Coming

According to Autonomous hedge fund money is piling up to between $3.5 and $5 billion marked exclusively for crypto investing.  The rise is dramatic reaching 226 funds globally compared with about half that many as recently as 5 months ago.  At the start of last year there were just 37.

The Negative Headlines Are Gone

There is nothing like raising prices to force the media to seek explanations.  Now instead of naysayers like Warren Buffett being quoted incessantly, CNBC brings on Shark Tank host Robert Herjavec declaring the Bitcoin is “going to skyrocket again” the “blockchain technology is here to stay” and that more government regulation will be the key driver.

CNBC even dragged out an old forecast by Tom Lee prejecting Bitcoin at $25,000 this year and Kay Van-Petersen of Saxo Bank predicting Bitcoin at $100,000.

The market litmus that I call “ gut feel” is hardly scientific.  There are probably analysts of big data that can offer better supporting evidence.  But for now, things are looking pretty good.

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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4.3 stars on average, based on 21 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

Technical Analysis: Bitcoin Tests Weekend High as Consolidation Continues

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The major cryptocurrencies entered a shallow correction during the weekend, and most of the coins are still trading below their prior rally highs, with only Ethereum Classic registering new highs. BTC is also very close to its Saturday high, as it is still leading the market higher, outperforming both Ethereum and Ripple.

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Bitcoin is still slightly overbought form a short-term perspective and the correction could still continue in the coming days, with key support zones found near $10,000 and between the $9000 and $9200 levels. That said, the price action in the most valuable coin and the broader segment is still in line with the bullish scenario, and we expect the trend to continue after the correction. Above the $11,300 level further resistance is ahead at $13,000 and $14,250.

BTC/USD, 4-Hour Chart Analysis

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Among the other relatively strong coins, Litecoin and Monero are also holding up well, while NEO is also showing short-term strength, diverging slightly from Ethereum which it has been correlating with in recent weeks.

Monero is also trading close to the weekend highs, as is working its way through the overbought short-term momentum readings. The coin is well above the previously dominant trendline, in clear short-term uptrend. Traders and investors could be looking for entry points during the correction, with strong support at $300, $280, and $240.

XMR/USD, 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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Analysis

Crypto Update: Market Still on Bullish Track as China, US Closed

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The segment might be in for a long weekend regarding trading activity, as both the US and Chinese traditional markets are closed, for the New Year and Presidents’ Day, respectively. That said, the major coins could still provide important clues about the state of the current uptrend, as the crucial correction that started yesterday is still ongoing, even with some of the currencies showing encouraging relative strength.

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The positive signs that we have been monitoring throughout the rally continue to persist, and as we mentioned yesterday, this pullback is very important in establishing a bullish cycle in the sector after the preceding steep decline.

Correlations remain relatively low, the momentum of the decline stayed muted so far, the leaders of the rally are still behaving well, so bulls could be looking for another leg higher soon.

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BTC/USD, 4-Hour Chart Analysis

Bitcoin is trading slightly below its weekend highs after spiking down towards the $10,000 support yesterday, as the largest coin recovered well following the initial move.

BTC still faces strong resistance near $11,300, with the next major level ahead at $13,000, and as the short-term momentum indicators still have room to correct, the consolidation could continue in the coming days with crucial support below $10,000 found in the $9000-$9200 range.

Ethereum Classic Leading Again

ETC/USD, 4-Hour Chart Analysis

Ethereum Classic continues to spearhead the rally, as the coin already hit a new cycle high above $38 today in early trading, and although the correction, which started before the segment-wide pullback could still continue, the relative strength of the coin is encouraging.

Above the current levels, further resistance is ahead only near $43 and $47, the all-time high for the currency. ETC could be the first major to score a record high after the correction, but long-term investors should be aware that another bullish swing could already carry the coin to overbought momentum readings, with it being already up almost three times off the crash lows, so now we wouldn’t add to long-term holdings.

LTC/USD, 4-Hour Chart Analysis

The other major altcoin are behind ETC in the cycle, with LTC and Monero still being the strongest from a technical perspective. Both coins are still trading in orderly short-term corrections above the previously dominant declining trendline, and they will likely continue to lead the broad rally. Ripple could also be ready for a move after its longer correction, and NEO is still showing surprising in today’s quiet environment, with the rest of the majors being virtually unchanged.

Stay tuned for our detailed technical analysis 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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