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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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4.6 stars on average, based on 348 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

Crypto Update: Market Remains Weak Despite Ripple’s Surge

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Ripple made headlines today in the cryptocurrency segment, as the third largest coin jumped by more than 15% after trading in a narrow range for several days. Most of the major coins joined the rally, but the gains were muted and the technical setup remained unchanged in most cases, with the long-term outlook still being bearish, while the short-term picture remaining mixed.

Ethereum, which has been in the center of the trends in the segment for weeks rallied back above $200, but stayed below the recent swing high, leaving several questions unanswered concerning the short-term trend. Bitcoin also got stuck near the $6275 level yet again, and the total value of the market is still below the $200 billion mark, with still no clear signs of major capital inflows in the segment.

ETH/USD, 4-Hour Chart Analysis

Ethereum quickly recovered above $200 after dipping below the weekend lows yesterday in late trading, retaining the short-term buy signal in our trend model. That said the coin still needs to show stronger bullish momentum to avoid a resumption of the clearly declining long-term trend. As sustained dip below $200 would still warn of a move to last week’s lows, while a move above $235 would open up the way towards $260 and the confluence resistance near $275.

BTC/USD, 4-Hour Chart Analysis

Bitcoin has been showing weakness in the last couple of days, and although the coin is still on a short-term buy signal, similarly to Ethereum, a quick recovery above $6500 would be needed to avoid a bearish turn.

Traders should hold on to their positions here, but given the still bearish segment-wide trends, we still don’t advise full positions even in the stronger coins. Below $6275, weaker support is found at $6000, close to the key long-term zone near $5850, while resistance is ahead at $6500, $6750, and $7000.

Ripple Needs Follow Through For a Buy Signal

XRP/USDT, 4-Hour Chart Analysis

While today’s spike in Ripple is encouraging, the coin needs to show further signs of strength, as the recent sudden spikes in the majors were quickly sold as the bearish trend remained dominant in the segment.

With that in mind, despite the broken resistance levels, XRP remains on a neutral short-term signal in our trend model, while still being bearish from a long-term perspective. The coin is currently trading right at the $0.32 level, with support found at $0.3130, $0.30 and near $0.30, while strong resistance is ahead at $0.35.

DASH/USD, 4-Hour Chart Analysis

Dash is among the stronger coins from a short-term technical standpoint, trading in a bullish consolidation pattern just below the key $200 level. That said, the coin failed to show strength today amid Ripple’s rally, and that still points to a dominant bearish trend in the segment. With that in mind, traders should wait for further positive signs before entering new positions, especially since a bullish leadership still hasn’t developed.

IOT/USD, 4-Hour Chart Analysis

IOTA is still weaker than average, together with NEO, EOS, and ETC, and the coin is still just above the August lows, clearly being in a broad downtrend, despite holding up above the lower boundary of its short-term range. A test of the lows is likely in the coming weeks, and the coin remains on sell signals on both time-frames, with support found between $0.455 and $0.475, and near $0.405, and with key resistance ahead near $0.57 and $0.64.

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 348 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

NIO Means Tesla Monopoly Ends

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By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

On Sep 12, NIO made its IPO on the NYSE, which is a very important event for all automotive investors. Founded in 2014 by William Lee, NIO is one of the first companies to compete with Tesla in the premium electric car segment. NIO is based in Shanghai, China, and it already got investment support from such renowned companies as Baidu, Lenovo, Temasek, Tencent, Sequoia, and others.

There are currently over 4,000 employees at NIO.

In June 2018, the company started selling NIO ES8; currently, 481 electric cars have been sold and 17,000 more have been pre-ordered. This is Tesla Model X’s direct competition, while its price is twice as low thanks to some good support from the Chinese government, which is interested in promoting electric cars.

NIO ES8 starts from $67,000 (basic configuration). It has two engines of 635 horsepowers and can ride 355 km before charging. A good difference from Tesla is an option to use replaceable batteries; the monthly subscription is $193, and it takes just around 3 minutes to replace a battery. Tesla planned to offer this option, too, but did not implement it.

The underwriters of NIO at NYSE were BofA Merrill Lynch, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley, and UBS. The initial price per share was $6.26. During the first day, 160M of shares were sold, which allowed NIO to get around $1B and get a place in top US IPO’s rating in 2018.

During the first day, the share price increased to $7, while the next day it jumped above $13, allowing investors to make over 100% profit. This shows investors are very much interested in the company, perhaps because of the good pre-IPO promotion. Before buying NIO shares now, though, one should wait first for the volatility to calm down.

Comparing Tesla and NIO is not the best job now, as Tesla already has over 14-year experience; however, this comparison may well become valid in a year or two, when more data arrive. While NIO is just starting out, its management may make accidental mistakes.

The lockup period (the period during which investors are not allowed to sell their shares) is 180d, which may additionally support the price, while after that the Q2 results will come out. Among NIO’s advantages, one may name government support as one of the biggest. While the trade war between the US and China is here to stay, the demand is high, and company may cater to Chinese customers first. When it starts conquering the US market, though, the conflict may have already come to an end. The company also admits that the customs duties may indirectly influence the car prices.

The issues NIO might face are already known, and the most obvious one is that of meeting the demand. Over the first 6 months of 2018, NIO had a loss of $502M, while the profit earned afterwards is currently just $7M.

Another risk is in the news that Tesla has come to an agreement with Shanghai authorities to build a car factory in the city, which means high competition for NIO. Still, NIO is likely to win thanks to the price, as the parts for Tesla are produced in the US only, and they are subject to customs duties.

NIO management also announced they had had no mass electric car production experience before, and this may have negative influence on the company growth – an issue already overcome by Tesla. Finally, for ES8, there are around 1,700 used coming from 160 vendors; with so many suppliers, delays in shipments may become quite a common thing.

Many things depend on how NIO is going to rise its production volume and how true the declarations of the management are. Previously, we’ve seen how Elon Musk’s words were sometimes very different from what happened in fact.

One of the key topics here is financing, as the development will require a lot of money. Even Tesla has failed to book net profits so far, its losses and debts still growing.

NIO shares are likely to rise in the short term, as investors will be playing on the fact the company is quite promising at first sight. Other conclusions may be only made after there are at least some financial data at hand.

Technically, there are two support levels for NIO: one at $7 and another at $9.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboForex shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

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 7 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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Analysis

Pre-Market: Sell The Rumor, Buy The News?

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After a long period of uncertainty, the US finally decided to commence with the second round of tariffs directed at China, slapping a 10% levy on $200 billion worth of goods, and threatening with tariffs on another $267 billion of goods in case of a Chinese retaliation. The tariffs will increase to 25% in 2019, but for now, the Chinese response was measured, with only an announcement coming from the Chinese ministry of commerce, saying that the country has no choice but to retaliate.

Shanghai Composite, 4-Hour Chart Analysis

While stock futures fell initially following the after-hours announcement by Donald Trump, today equities are slightly higher across the board, with even the Shanghai Composite staging a rally off its fresh bear market low. The new tariffs were widely expected by the market, so the “buy-the-news” response is understandable, but for a sustained rally in Chinese assets, a resumption of the trade talks between the two largest economies would likely be needed.

DAX 30 Index, 4-Hour Chart Analysis

The main European indices are little changed with the DAX still hovering around the 12,000 level and the EuroStoxx 50 being stuck ear 3350. Both benchmarks hit three-week highs in early trading, but the rally on the Old Continent is still lacking real momentum, especially given the distance to the bull market highs.

EEM (Emerging Markets ETF), 4-Hour Chart Analysis

Emerging markets are still very weak with the recent bounce being barely visible on the charts, and the segment is still stuck in a strong downtrend, with especially the most vulnerable countries weighing heavily. Emerging market currencies are mixed today, with the Turkish Lira completely erasing its rate hike gains, but with the Brazilian Real, the Chinese Yuan, and the Argentinean Peso being relatively stable after the US trade announcement.

S&P 500 Index Futures, 4-Hour Chart Analysis

Stocks are set to open slightly in the green on Wall Street, with the major indices still being within striking distance of their all-time highs, and with only the Nasdaq pulling back meaningfully recently. The S&P 500 is just a tad below its record high, and with the MACD indicator back in neutral territory, a move to new highs could still be just around the corner.

Dollar Stable as Oil Jumps Amid Syria Escalation

Interestingly forex markets remained stable despite the trade war escalation, with the Dollar drifting slightly lower compared to its major peers, and losing a bit more ground against the main China-related currencies. Commodities are also higher today, with especially the China-linked copper and crude oil being in the green and gold trading virtually unchanged.

WTI Crude Oil Futures, 4-Hour Chart Analysis

While the scope of the Syrian conflict shrank in recent months, the tensions around the last rebel stronghold Idlib are rising. Russia and Turkey (which back opposing forces) surprisingly announced the formation of a demilitarized zone around the city to avoid a siege and a likely bloodbath, but overnight, a Russian recon plane was downed, which could lead to a reescalation in the country.

Russia is blaming Israeli forces for the casualty, and an open conflict between the two countries would be increase risks in the region, and possibly drive oil prices higher. The Brent Oil contract has been already outperforming the WTI one thanks to the sanctions against Iran, and today Saudi officials stated that the Kingdom is comfortable with the $80 per barrel Brent price, further widening the divergence between the two contracts.

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 348 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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