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Weekly Analysis: Stocks and Cryptocurrencies Surge as the Eurozone is Saved (For Now)

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Weekly Recap

Current Value Weekly Change
2380 1.30%
12470 2.11%
49.19 -1.45%
1269.50 -1.71%
1318 7.85%
1.0898 1.63%

 

Traders could almost hear the collective sigh of relief in the financial world, as the French election removed the risk of an imminent political crisis in the Eurozone. Global stock indices surged to new bull market and all-time highs in the aftermath of the referendum, with the European indices understandably leading the way higher. The NASDAQ also continued to outperform the other majors, boosted by corporate earnings, while the Nikkei ignored the pronounced weakness in Chinese stocks, as Japanese traders celebrated the decline in the Yen. The markets held up well throughout the week, although a lot of stocks failed to join the party, and the weak economic numbers in the US caused a dip towards the end of the week.

Not surprisingly European currencies were the strongest this week, but on an interesting note, the Pound fared better excluding the Monday morning gap higher. The currency remains in a robust short-term uptrend since the announcement of the snap elections in June. The Dollar index remains near its 5-month lows, thanks to the recent strength in the Euro, although the Yen was heavily sold this week, as the demand for safe-haven assets dwindled. Gold was also the victim of the positive sentiment, but it remained relatively strong and gained ground near the end of the period, following the slightly dovish meetings of the European Central Bank and the Bank of Japan. Oil remained under pressure despite the rally in risk-on assets and finished the week near the $49 support after several days of choppy trading.

 

Dollar Index, Daily Chart Analysis

Cryptocurrencies

The cryptocurrency market had another blowout week, as not only did Bitcoin hit a new all-time high, but several other currencies experienced fierce break-outs. The change in the value of the market reflected the buzz, as the sum of the coins’ market capitalization topped $34 billion, just a few weeks after reaching $30 billion for the first time. Ethereum, Ethereum Classic, and NEM were among the notable winners of the week, as all of them surged to new highs. Towards the end of the week, even the previous laggards among the majors, such as Ripple, Monero, and Dash rallied strongly. Ripple and Dash are flying high so far in weekend trading as well, being up by more than 30%, and 20% respectively. Litecoin failed to rise above last weekend’s highs but it remains just below those levels after a choppy consolidation week.

Economic Numbers

The US economy provided another round of reality check for bulls, as almost all of the major releases posted significant negative surprises. Although the numbers themselves were not terrible by any means (excluding the three-year low in GDP growth), the string momentum that carried the Trump-rally to new highs earlier on this year seems to be fading. While markets don’t expect a rate hike on next week’s Federal Reserve meeting, the additional tightening steps could also be in danger should these tendencies continue. The German IFO index as among the positive surprises, boosting the Euro on Monday, but the British GDP reading also missed expectations, with only the Eurozone inflation number providing evidence of growth.

Technical Corner

S&P 500, 4-hour Chart Analysis

The S&P 500 finished the week slightly lower following the negative GDP surprise, but the “election-gap” is still well below the current levels. As the strong rally in the NASDAQ couldn’t carry the index above its prior high, it seems likely that it will test the 2355 level in the coming days. The long-term picture remains bullish despite the current weakness, and with strong support zones found near 2332 and just below the 2300 level.

Key Economic Releases of the Week

Day Country Release Actual Expected Previous
Monday GERMANY IFO Business Climate 1.26 million 1.25 million 1.22 million
Monday CANADA Wholesale Sales (monthly) 1.22 million 1.25 million 1.30 million
Monday US FOMC’s Kashkari speaks 0.50% 0.50% 0.0%
Tuesday UK Public Sector Borrowing 1.50% 1.50% 1.50%
Tuesday US CB Consumer Confidence -1 million -2.2 million
Tuesday US New Home Sales 22.0 25.6 32.8
Wednesday AUSTRALIA CPI (quarterly) 244,000 241,000 234,000
Wednesday CANADA Core Retail Sales
Wednesday US Crude Oil Inventories 0.50% 0.60% 0.50%
Thursday JAPAN Monetary Policy Satement -0.10% -0.30% 1.70%
Thursday EUROZONE Base Interest Rate -3.6 million -1.1 million -1 million
Thursday EUROZONE Monetary Policy Satement
Thursday US Core Durable Goods 0 0 0
Thursday US Initial Jobless Claims (weekly)
Thursday US UOM Consumer Sentiment -0.20% 0.40% 0.50%
Friday UK Prelim GDP 257,000 241,000 244,000
Friday GERMANY Retail Sales 0.30% 0.40% 0.60%
Friday US Advance GDP 0.10% 0.10% 1.80%

 

The Story of the Week: Volatility and Short-Interest Near Record Lows on Wall Street

 

Volatility minimums and market tops in the S&P 500

The Volatility Index (VIX) which is one of the simplest measures measuring fear among investors is close to its multi-decade lows. Several commentators draw the conclusion that this has to mean that investors are too bullish, and participants are all in on the long side, so a market decline is inevitable. While the logic might be intriguing, and, in fact, several other measures point to a way overvalued market in the US, don’t fall into the trap of this simple conclusion. Looking at the history of the VIX, we can see that it did a poor job in forecasting the previous two bear markets, and you could even argue that according to this indicator, we are still in for years and years of advances.

On another note, short interest is also hitting record lows, as bears seemingly capitulated after 8-years of gains, and this week’s post-French-election euphoria delivered another blow for the remaining short sellers. The $1 million dollar question is, of course, that are these extremes any indication of a long-term top or not? The correct answer is the usual maybe… Trying to find the “ultimate indicator” (look at this great article on the infamous Hindenburg Omen) is generally a bad idea, but every once in a while all indicators will nail the top. This doesn’t mean that the current overvaluation and these signs of capitulation together shouldn’t be taken seriously, but using more robust methods, like trend analysis should be your primary tools, even if they won’t point out the exact tops and bottoms.

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: Bitcoin Plunges Below $6500 as Heavy Selling Resumes

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The cryptocurrency segment is having another very negative day after a calmer period, as selling pressure intensified yet again. All of the major coins turned sharply lower, with the laggards of the recent period, Litecoin, Monero, and Dash confirming their downtrend and the relatively stronger coins also taking a beating.

The total capitalization of the segment dropped below $270 billion, and from a long-term technical standpoint, several currencies are in precarious positions. With no clear news catalyst behind the move, technicals are playing a very important role, and last week’s lows will likely be in focus in the coming days.

BTC/USD, 4-Hour Chart Analysis

Bitcoin is still relatively weak both on the short- and long-term time-frames, and it dropped back to the $6275-$6500 zone that has been acting as primary support during the recent leg lower. Given the importance of the long-term zone between $5850 and $6000, a break below $6275 could set up a crucial test in the coming days. For now, traders still shouldn’t enter new positions, while investors should hold on to their coins as the bullish secular trend is still intact.

No Hiding From the Selloff as Altcoins Broadly Lower

LTC/USD, 4-Hour Chart Analysis

With the weakest coins leading the way lower again, new swing lows are likely in the majority of the coins, although there is still hope for bulls that a major long-term breakdown can be avoided. Ethereum fell below $500 after touching the declining short-term trendline, and it remains in a bearish trend, even as it’s still in a much better technical position compared to BTC, holding up well above the April lows, and being further away from last week’s swing low as well.

ETH/USD, 4-Hour Chart Analysis

 That said, we remain negative regarding the short-term outlook for the second largest coin, and traders shouldn’t enter new positions here.  Above the $500 level, strong resistance is ahead between $555 and $575, while primary support is found at $450, with further zones near $400 and $480.

BNB/USDT, 4-Hour Chart Analysis

There are no real hiding places for crypto investors from the current selloff even as Binance Coin is still holding up relatively well, within a clear uptrend and above crucial technical support.  That said, as we warned before, given the broad downtrend in the segment, traders should be cautious with new short-term positions.

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

Italy Spooks markets Again as Stocks Remain Under Pressure

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European stocks Led the way lower today despite a bullish start in Asia, as equities gave back their gains when Daimler published a surprising profit warning, which was deeply affected by the recent trade war developments, reigniting fears of a tariff-driven downturn in global trade.

DAX, 4-Hour Chart Analysis

The Old Continent got into more trouble later on, when two anti-EU officials were named in Italy, resurrecting fears of a clash between the systematically crucial country and the core of the Eurozone. Italian yields rose in European trading, and although they are still shy of the levels hit during the May scare, the periphery could be in trouble as the ECB pledged to exit the market by the end of the year.

Nasdaq 100 Futures, 4-Hour Chart Analysis

The main European indices were smashed lower during the session, with the DAX hitting a two month low, still being very weak relatively speaking compared to its US peers. US stocks sold off heavily following the opening bell and they failed to recover, unlike two days ago, and the major benchmarks traded well below yesterday’s levels just before the close.

The Nasdaq and the Russell 2000 lost some of their recent mojo, pulling back heavily of the all-time highs during the day. All in all, the risk off shift continues to dominate across the board, as we expected and we remain negative on risk assets here, especially regarding emerging markets, even as the Dollar’s rally could be over for a while.

Dollar Pulls back as Pound Surges

USD/CAD, 4-Hour Chart Analysis

The Dollar took a beating as the Philly Fed Index came in much worse than expected, and as the Bank of England sent hawkish signals, pushing the Pound and the Euro higher. The central bank left its benchmark rate unchanged at 0.5%, but a rate hike this year got much closer, with a key member of the bank voicing inflationary concerns.

The Greenback fell more than what the events would imply, so a larger scale consolidation could have already started in the currency following the recent gains and the marginal new high yesterday. With the EUR/USD pair nearing the 1.1450-1.15 support zone, the USD/CAD hitting 1.33 and the AUD/USD touching 0.7350, a meaningful counter-trend move would be timely in the surging reserve currency.

WTI Crude Oil, 4-Hour Chart Analysis

Gold continued to drift lower before the Dollar’s reversal and it hit $1262 for the first time since lat December before bouncing back above the $1270 level in late trading. Crude oil also fell sharply in early trading, and the WTI contract traded with a $64 handle before rallying back to $66 per barrel.

The OPEC meeting, which is expected to result in a supply increase by the cartel made the crucial commodity very volatile in recent days, but we expect the bearish trend to continue, with a likely dip to the $60 level 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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Analysis

Crypto Update: Coins Drift Sideways as Trading Activity Plunges

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Liquidity dried up in the cryptocurrency segment in recent days, as trading volumes have been declining progressively, while the major coins got stuck in tight ranges. Only a few coins show signs of activity, and the bearish short-term patterns continue to dominate the market. With a group of currencies, namely Litecoin, Monero, Dash, and Bitcoin itself clearly dragging the segment down, the short-term trend will likely continue, as the previous leaders are now showing strength either.

While all of the top digital currencies are showing some gains today, and the total value of the market edged close to $290 billion, major resistance levels are still towering above. The fact that the effect of the Bithumb hack faded away quickly is a positive here, but until signs of bullish momentum and a clear leadership forming, the short-term outlook remains bearish.

BTC/USD, 4-Hour Chart Analysis

Bitcoin continues to trade near the $6750 level, edging ever closer to the declining short-term trendline, in a bearish consolidation pattern. Bulls would need a sustained move above $7000 to negate the declining trend, but for now at least a test of last week’s lows is likely with a possible move towards the key long-term zone between $5850 and $6000.  The short-term zone around $6350 level provides support, while further resistance is ahead near $7350.

Ethereum Nears Trendline as ETC Attempts Breakout

ETH/USD, 4-Hour Chart Analysis

Ethereum has been among the strongest coins in the last few days again, and coupled with its long-term relative strength, the second largest coin is still the best candidate to lead a recovery. That said, the coin still faces strong resistance between $555 and $575, and bullish momentum is suspiciously weak. Primary support is found at $500 with further zones near $450 and $400.

ETC/USD, 4-Hour Chart Analysis

Ethereum Classic has been positively diverging compared to the rest of the market, together with Binance Coin, and to a lesser extent Tron ever since its inclusion to Coinbase, and the coin moved above the key $16 resistance yesterday in late trading.

While ETC is slightly overbought from a short-term perspective, a consolidation above $16 and a subsequent move higher could confirm a trend change. For now, the short-term trend signal is only neutral, and traders should remain cautious given the broad downtrend in the segment

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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4.6 stars on average, based on 280 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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