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Market Overview

What’s the Big Deal?

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So everybody seems to be worried about this issue with Tether. If you’re not familiar with the situation, here’s an excellent article that explains the whole story.

Several clients have already approached me asking what the ramifications could be, but honestly, I really don’t see the big deal.

Firstly, the US Government has been creating USD out of thin air for the better part of the last decade without having any major negative impact on the Dollar’s price or it’s ability to be used as a medium of exchange.

Secondly, even if market players do lose confidence in Tether and it goes to zero, what’s the worst-case scenario for Bitcoin and other cryptocurrencies? All it means is that alternative investors will prefer to rotate out of Tether and into other coins.

The biggest impact that I can see is on the exchanges who use Tether as their base currency. But please… the exchanges aren’t hurting at the moment. We saw coincheck in Japan just got hacked for nearly half a Billion Dollars only to announce the next day that they will pay it back from their own ample pocket.

Perhaps I’m missing something, as I often do, but from what I see, the faster this whole thing shakes out the better.

@MatiGreenspan
eToro, Senior Market Analyst

Today’s Highlights

Record Breaking Stocks

2 Euro Headwinds

Red Cryptos

Please note: All data, figures & graphs are valid as of February 1st. All trading carries risk. Only risk capital you can afford to lose.

Traditional Markets

Despite the pullback in the stock market at the beginning of the week. January has ended by breaking several records on Wall Street.

The Dow Jones has closed it’s 10th consecutive month in the green, making it the longest streak of monthly gains since 1959 and the S&P500 has had its best start of the year since 1997.

The US Dollar, on the other hand, is not having a fab year and has extended the losses seen in 2017.

As if things weren’t bad enough for the buck. Janet Yellen got a bit aggressive yesterday on inflation. Stating that it may be coming sooner than expected. Yellen out!!

On the one hand, that could be good for the Dollar since the Fed will likely raise their rates quicker once Jerome Powell takes over, on the other hand it means that inflation is coming.

I might need to rethink what I wrote in the opening letter about the US and inflation. :/

Over to Europe

The Dax in Germany has been rather patient as they wait for Angela Merkel to put her government together. The country has been in political deadlock since the elections on September 24th.

The stocks did in fact rally after Merkel’s apparent victory (yellow circle) however it seems to have been flip-flopping and hasn’t made any significant moves since then.

The Euro on the other hand has been rather strong. Perhaps in the face of a weaker Dollar, or due to a tighter stance from the European Central Bank.

Either way, over the next month focus will likely shift to their fourth largest economy. Elections are coming in Italy on March 4th and things don’t look pretty.

The anti-establishment Five Star Movement (yellow) has been gaining strength but more notably, the center-left Democratic Party (red) has been losing popularity.

Europe seems to be impervious to political risk ever since Marine Le Pen’s defeat in France. It’s not clear why more people aren’t talking about the Italians at this point.

Crypto Watch

As I’m writing, things are rather red in crypto-land. Despite what it looks like on the short term charts and the FUD on the front pages, January’s loss needs to be seen as a reaction to the gains from November and December.

Here’s a chart that was posted yesterday by @Liamdavies, who sees this entire falling wedge as a bullish indicator.

Of course, we always need to hammer home the risk disclaimers when it comes to crypto, there is always a chance of everything going to zero, which is why it pays to diversify, diversify, diversify!!!

Use proper money management. If more than 20% of your overall assets is on cryptocurrencies you are taking an enormous risk!!!

Rather, the best way to go is to spread your investments across the different stocks, indices, currencies, commodities, and ETFs that are on the platform. This can be done simply copying other investors with more experience or by using some of the copyfunds that are in the platform.

On Monday, our CEO and founder Yoni Assia will be hosting a webinar to deliver his outlook for 2018. Space is limited so if you’d like to be in the live event, please register now.

As always, let me know if you need assistance or if you have any questions. Have an amazing day ahead!!

This content is provided for information and educational purposes only and should not be considered to be investment advice or recommendation.

The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro.

Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose.

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 Comments

4 Comments

  1. Baja Surfer

    February 1, 2018 at 8:35 pm

    I see comments about Tether like “I really don’t see the big deal” from very smart people and it worries me.

    I’m not sure how old you are but I’m old… I started programming Basic/DOS in 1982 and my first video game was pong… so I’ve lived through a lot of technology up/downs, and I’ve seen my fair share of investment schemes/fraud collapse, and Tether has all the red flags of a scheme/fraud… it’s not about financial stability, using wash trading to build reserves, it’s about honesty and transparency, they have breached their fiduciary responsibility with their customers by not being audited, why would you not hold them accountable? If this was Apple, Google or any other legitimate company you would call them out in a heartbeat.

    Now I know many people are invested in cryptos on an emotional level, so it may cloud their judgment, but this statement:

    “Firstly, the US Government has been creating USD out of thin air for the better part of the last decade without having any major negative impact on the Dollar’s price or it’s ability to be used as a medium of exchange.”

    Are you really trying to compare a government with physical assets to Tether? Which is backed by no physical assets. This is irresponsible. Yes, from a macro perspective the monetary policy of the US dollar is unsustainable, and there will be a reckoning, but comparing Tether is not even close.

    Tether as a company has a responsibility to fulfill their promises to customers, just like any other business, and as a prudent investor, you should know this, it’s not personal, it’s business. You provide one example of a company you invest in other than Tether that has failed to meet their commitments to investors/customers and not be audited.

    • Mati Greenspan

      February 1, 2018 at 10:49 pm

      Hi Mr. Surfer,

      Love this reply!! Thanks a lot for taking the time to write it. In fact, this is exactly what I was looking for when I wrote that “I might be missing something.”

      In fact, I was born in 1983 so still have a lot to learn. 🙂

      My main question is.. ok, let’s say this is a huge scandal as it does appear to be, what’s the worst case scenario?

      I don’t see volumes on Tether as large enough to have any lasting impact on the market. So perhaps you can answer, what would a complete blow up look like? How would it impact the exchanges?.. more importantly, how would it impact the price of BTC ETH and the rest?

      Thanks,
      Mati

  2. Baja Surfer

    February 1, 2018 at 11:09 pm

    These are great questions, and I believe these are the questions everyone should be trying to answer:

    Let’s say this is a huge scandal as it does appear to be, what’s the worst case scenario?

    What would a complete blow up look like?

    How would it impact the exchanges?

    Would it impact the price of BTC ETH and the rest?

    Here’s a viewpoint from someome that does a lot of research (https://www.tradingview.com/chart/BTCUSD/mfQ7rG2F-BTC-India-and-Tether-Just-Another-Distraction/):

    FACTS:
    #1 Bitcoin’ is NOT the only coin traded in Tether. So this statement is misleading to say the least. Around 60% of the Tether market is traded paired with bitcoin’ but the other 40% is among a basket of other currencies. I’m sure it fluctuates from exchange to exchange but bottom line its not traded paired with bitcoin -9.85% only.

    #2 Tether is simply a crypto currency “pegged” or supposed to be backed by the dollar.

    #3 Tether is 0.4% of the overall crypto market cap and 0.7% of the alt coin market cap with a 2.2 billion dollar cap.

    #4 It works just like every other fiat currency in which it is simply a median of exchange

    Now lets assume Tether is a complete scam and there is not $1 USD in any bank account to back it.
    Tether would lose 100% of it’s market 2.2 Billion dollar market cap instantly. Does this mean that Bitcoin’ is doomed?

    NO! Now it may bring to light the corruption in the space which may adversely affect bitcoin’ and the market as a whole temporarily, but it does not change the fundamentals of bitcoin’. So it is simply a coin that is backed in faith by the faith of another currency. The irony! So in my opinion, unless you own Tether’ directly I personally am not worried and would use the fallout as a buying opportunity.

    And I concur, the numbers indicate it’s not going to destroy the market, but you know the market is an emotional being… so for us as traders/investors it’s up to us to understand the numbers for the “intrinsic value” (and that’s a whole different discussion) and not dismiss facts as FUD.

  3. dbenn8

    February 1, 2018 at 11:52 pm

    Hey all, the major concern in this NYTimes article is that these valueless Tether have been used to repeatedly prop up the Bitcoin market. I think they are claiming that many times that Bitcoin has started to fall in price, $100Mil worth of tether have been added to the ecosystem and used to start buying BTC to push its value back up.

    So, the concern here is that BTC’s fundamental value is actually much lower than the market has been valuing it at, since zero value tether have been used by the exchanges to prop up its price when it falls.

    As we know, Alts are pretty strongly tied to BTC, so it could theoretically be propping up this entire giant rise in market cap…

    https://www.nytimes.com/2018/01/31/technology/bitfinex-bitcoin-price.html

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Analysis

5 Things To Watch Next Week

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An Italian Budget Deal?

EuroStoxx50 Index CFD, 4-Hour Chart Analysis

Outside the European Union, the ongoing debate regarding the Italian budget might be quite perplexing, especially given the strong reaction by financial markets. While the relatively small budget deficit of the country is really violating the rules of the Eurozone, we have seen much larger deviations from the fiscal rules without meaningful consequences.

That said, the sorry state of the Italian financial system, the stealth capital flight from the country, and the structural imbalances of the ECB’s bond purchasing program validate the scrutiny of the EU. Some analysts say that the Italian banking system is outright insolvent, but in any case, deep structural reforms would be necessary, and the real issue behind the debate is the populist anti-EU rhetoric of the new government. With that mind, even if the two sides reach a deal on the budget, which could lead to a strong relief rally in Europe, Italy will likely cause further severe headaches down the road.

Trillions in Market Cap Reporting

Nasdaq 100 Futures, 4-Hour Chart Analysis

The US earnings season is entering its crucial phase, with next week being one of the busiest in this quarter. The Nasdaq will be in the focus throughout the week, but the sheer size of the tech giants reporting means that the whole market could experience wild swings.

The three largest companies Microsoft (MSFT), Amazon (AMZN), and Google parent Alphabet (GOOG), alone represent more than $2 trillion in market value, and Intel (INTC), Verizon (VZ), AT&T (T), Visa (V) are also very important for the US and the global economy.

So far, the quarter surpassed expectations, and should the string of earnings beats continue, it could provide stability to the shaky stock markets. Besides the largest firms, we will keep a close eye on anything China-related, to get authentic information on the real state of the country’s economy.

The European Central Bank Behind the Curve, as Usual…

EUR/USD, 4-Hour Chart Analysis

As global economic growth is clearly slowing, and the Italian worries already caused a widening in the yield spreads between the core and the periphery in the Eurozone, the ECB seems to be way behind the curve with its monetary policies.

Although the tightening the schedule of ECB is very gradual, we could still get a hawkish surprise next week, and that could enter the hall of fame among the disastrous decisions by the central bank. The ECB managed to hike rates in the middle of financial crises before (the summers of 2008 and 2011), and although the Euro’s weakness and the Fed’s tightening steps could give the impression that there is room for a hawkish shift, the macro backdrop suggests otherwise. Look for a strong bounce in the Euro and further weakness in equities, should Draghi & Co. confirm our suspicions.

Will the Chinese Bounce Last?

Shanghai Composite Index CFD, 4-Hour Chart Analysis

2018 for Chinese stocks has been nothing short of disastrous, with the key benchmarks entering deep bear markets, fading all rally attempts so far. With the largest credit bubble in history threatening the country’s financial system, and with Chinese growth being more important than ever for the global economy, what happens in the coming months could be crucial for all investors.

On Friday, one of the lowest (official) GDP prints came out from China, while auto sales also dropped for the first time in decades, suggesting that the stock market could be correct in pricing a hard landing. While the verbal and other forms of intervention lifted stocks before the weekend, should another rally attempt fail, the bear market could enter an accelerating, mainstream phase.

US Midterms Drawing Closer

The Chinese problems are likely not caused, but definitely amplified by the ongoing trade spat with the US, and before the midterm elections in three weeks time, it’s unlikely that we will see easing in the conflict. According to polls and prediction markets, the GOP will likely keep the Senate majority. While the Democrats are still expected to take the House, the Republicans and Trump seem to have the momentum.

As stocks usual suffer in times of political uncertainty, risk assets would likely be better of, at least short-term if the current trends would continue, as A blue House + Senate combination could mean two very stormy years in Washington.

ChartBook

Major Stock Indices

S&P 500 Futures, 4-Hour Chart Analysis

Dow 30 Futures, 4-Hour Chart Analysis

VIX (US Volatility Index), 4-Hour Chart Analysis

DAX 30 Index CFD, 4-Hour Chart Analysis

FTSE 100 Index CFD, 4-Hour Chart Analysis

Nikkei 225 Futures, 4-Hour Chart Analysis

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

Forex

USD/JPY, 4-Hour Chart Analysis

GBP/USD, 4-Hour Chart Analysis

EUR/GBP, 4-Hour Chart Analysis

AUD/USD, 4-Hour Chart Analysis

Commodities

WTI Crude Oil, 4-Hour Chart Analysis

Gold Futures, 4-Hour Chart Analysis

Copper Futures, 4-Hour Chart Analysis

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 380 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

Volatile and Flat US Session Ends a Hectic Week for Stocks

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The major US indices finished virtually unchanged today, despite the positive open, while short-dated Treasuries closed the week near their multi-year lows. The session had several ups and downs, but the uptick in yields and the weakness in Europe proved too much for a sustained move higher to develop, despite the string of better-than-expected quarterly earnings reports.

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

From a broader perspective we can say that another bounce faded in stocks, with small-caps underperforming yet again, so the risk-off trend got one more confirmation.

Russell 2000, 4-Hour Chart Analysis

We have been tracking the main US small-cap benchmark all week long, as it has been precisely leading the broader market in recent weeks, and today the index got very close hitting a new 6-month low. The next week will be crucial for global risk assets, as given the long-term breakdowns in the main European benchmarks, the new bear market lows in Chinese stocks, and the ugly market internals on Wall Street, this might be the last opportunity to avoid protracted bearish period, or even a global bear market.

While Italian assets are under severe pressure, with government bond yields charging higher, decoupling from the “core” of the Eurozone, credit markets in general are not showing signs of broad distress. With that in mind, we don’t expect 2008-like dislocations in financial markets, for now, but investors should watch high-yield corporate bonds, where large excesses built up in recent years.

Forex Markets Turn Choppy as Dollar Pulls Back Again

EUR/USD, 4-Hour Chart Analysis

The China-led rebound in equities, which faded in late trading, and the Dollar’s retreat were the two main drivers in forex markets today. The EUR/USD recovered above the key 1.15 level after reaching as low as 1.1430 in early trading, while the Dollar index also failed to rise above its recent swing high, so the reserve currency could continue to consolidate before re-testing the August lows.

The bounce in the Euro was helped by the rumors regarding a possible new budget proposal from Italy, and as Moody’s downgraded Italy after the US market close, we will likely see further choppy, hard-to-trade action in currencies, especially given the large moves in US Treasury yields.

Gold Futures, 4-Hour Chart Analysis

Commodities had a mostly bullish day thanks to the Dollar’s dip, with copper and crude oil both recovering after yesterday’s selloff. The WTI crude contract bounced back all the way to the $70 per barrel level, while copper avoided a key breakdown out of its lengthy consolidation pattern.

Gold is also consolidating, albeit in a much different technical position, as the precious metal is trying to form a swing low that would confirm a short-term uptrend after last week’s breakout. A move above short-term resistance would likely lead to a test of the $1245-$1250 zone, with a likely rally up to the next major resistance level near $1260.

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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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4.6 stars on average, based on 380 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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Market Overview

Market Update: U.S. Stocks Settle Mixed in Choppy Trade; Cryptocurrencies Endure Modest Pullback

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U.S. stocks traded mixed on Friday, as only one of three major bourses managed to bounce back from the heavy losses incurred in the previous session. Cryptocurrencies showed signs of wobbling early on before a modest recovery kept the market near break-even.

Stocks Lose Steam

The large-cap S&P 500 Index held higher up until the final moments of trade before running out of gas. It settled flat at 2,767.78 following a back-and-forth session. Among the 11 major sectors tracked by the index, five reported gains. Consumer staples were the strongest contributors, surging more than 2% as a whole. Utilities companies and financials stocks also reported firm gains.

The Dow Jones Industrial Average also finished in positive territory, adding 64.89 points, or 0.3%, to close at 25,444.34.

Meanwhile, the technology-driven Nasdaq Composite Index fell further into the red, shedding 0.4% to 7,449.03.

A measure of implied volatility known as the CBOE VIX held near the historic average on Friday, as the recent string of tumultuous sessions eroded risk sentiment on Wall Street. The so-called fear gauge closed just below 20 on a scale of 1-100.

U.S. equity markets pulled back sharply on Thursday as China-induced volatility weighed on investors’ sentiment. Chinese stocks led a global recovery on Friday as policymakers offered soothing remarks on the health of the economy. Still, the benchmark Shanghai Composite Index is down double-digits this month.

Earnings Show Promise

Another batch of upbeat corporate earnings have helped smooth out the recent bout of volatility in U.S. markets. On Friday, Dow blue-chip Procter & Gamble (PG) reported better than expected revenue growth as well as the sharpest rise in quarterly sales in five years. The company posted adjusted per-share earnings of $1.12 on revenues of $16.69 billion.

Other companies to report higher than expected results include Honeywell International Inc. (HON) and Schlumberger Limited (SLB).

As of last Friday, 86% of S&P 500 companies had reported earnings surprises for Q3, according to FactSet. The current blended earnings growth rate for S&P 500 companies is 19.1%.

Crypto Volumes Plunge

Cryptocurrency prices saw limited upside on Friday, as a sharp decline in trading volumes kept investors on the sidelines. The combined market capitalization of all coins bottomed near $206 billion overnight Thursday before recovering near $208 billion. Overall, the market is little changed compared with previous sessions.

Trade volumes are down some 6% over the previous day and nearly 20% compared with a week ago. As CCN recently reported, daily turnover in bitcoin is approaching yearly lows – a clear indication that bullish upside is limited.

Bitcoin posted a quick and dramatic upsurge on Monday as Tether’s USDT token lost its peg to the U.S. dollar. According to Galaxy Digital’s Mike Novogratz, the selloff of USDT is due to a lack of transparency at the parent company.

“I think Tether didn’t do a great job in terms of creating transparency,” he said at a recent conference in Frankfurt, as quoted by Bloomberg. Until now, Tether has refused to provide an audit of its dollar-backed reserves, igniting concerns that it was artificially inflating its stablecoin circulation.

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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4.6 stars on average, based on 649 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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