Crypto & traditional analysis - Technical & fundamental
Updated
Hello everyone! In this analysis I will try to go deep into what is going on right now and where I see things going in the medium and long term. I'll start with crypto and then move onto the rest of the markets. I have tons of interesting charts which I'll put all at the bottom so that it is easier to read and find everything else in the right order.
Right now Bitcoin is in a tricky spot. It has gone up a lot along with all other altcoins and the momentum is slowing down. It could definitely get down to 38-42k to wipe out all the longs, retest the breakout zone and then go higher. Maybe it gets down to 34-35k, but that would take a big crash everywhere for that to happen. BTCUSD has only touched the 50 DMA once and I think eventually it will dip below it so that it can create more panic. Most models I am looking at on various websites indicate that we'll get a bottom in the 34-40k area, if we haven't bottomed already. It is actually likely that we have as longs have gone down substantially. So far over the weekend we've seen it go down and slowly go back up to where the price closed which is somewhat bullish. BTC is in a bit of weird no trade zone for now based on TA.
On OKex longs have gone down from 1.7 to 1.05, on Bitfinex we saw a big wipe out (although not as large as the one in January). Funding has remained low for about a week and occasionally gone negative on some exchanges. Premiums on futures have gone down a lot, especially on ones expiring in March indicating longs have gone down quite a bit. The GBTC premium has gone deeply negative potentially both due to longs capitulating but also because there is a lot of competition for Grayscale with many similar products launching, as well as an ETF in Canada and potentially means an ETF or ETP is coming in the US (there are 3-4 active proposals waiting for approval at this point). In general Bitcoin's fundamentals are incredibly bullish as big companies are buying, we have lots of positive news and adoption across all the crypto space as well as lots of positive developments in terms of regulation and access to everyone all around the world. The momentum seems very strong and adoption is moving fast. Based on my models and analysis I can easily see Bitcoin get to 150-250k this year, even if March is a down month (which historically has been the case).
What seems a lot more bullish is alts vs Bitcoin. Alts are showing a lot of strength and I've been talking about this for weeks. Now that we've had several rotations, with different segments of the market pumping and overall alts outperforming Bitcoin, we are moving into the next phase. We have Ethereum and Defi start the dance, which then lead to the rest of the market outperforming as they corrected by 35%. Altcoin dominance seems ready for a massive move up, while ETHBTC seems like it put a nice bottom on the 300 DMA. ETHBTC could get to 0.027 at some point, but it might get to the 50 DMA first which has been absolutely flat for days. We even see that the RSI got oversold and now slowly turning up. It makes sense that now ETH could do better as it perfectly retested the 1300-1440 zone which was the old ATH and consolidation zone. If Bitcoin goes down substantially ETHUSD could get to 1100-1200 but not lower, and overall even if BTC goes down alts won't suffer as much and there will be several parts of the market that do well. Focusing on BTC pairs and not USD pairs is the best strategy if you think BTC will go down.
It's time for stonks! So far the ones that have suffered the most have been big US tech along with Chinese stocks. This is the largest correction we've had since November and we might have even more to the downside. So far my opinion has been since May-June of 2020 that things will go parabolic. Things got really hot, but the fact that big US companies are doing so badly isn't something that won't have an effect on the markets. Yes the rotation to value and smaller stocks has had a pretty big rally and could continue (very likely actually), but this doesn't mean that this correction has been enough. By looking at indices alone, I'd say it is too early to tell. So far this looks just like a perfect retest, trap below the 50 DMA's and then higher. Many indices fell below the 50 DMA after testing it a few times and then bounce hard. We had quite a bit of volatility around the Powell speech and the NFP report which came out better than expected. European stocks actually look incredibly strong and it might be their time to shine, while Asian stocks might take a break.
It's quite likely we are half way through the correction or maybe even 1/3 through it and we'll finally get a 10-15% across the entire board like we did in November. One thing I've mentioned many times before is how once markets broke above their key diagonal resistance in 1998-1999 there were many 10-15% corrections and so far we've only gotten 2. Could this get much larger and painful? Sure, but I don't think we've actually put in a macro top. Initially I had some thoughts that we might have had done so, but it looks unlikely. However it isn't impossible that we see a big correction for reasons I'll explain soon, but we could imagine a similar correction to what we had in Q4 2018.
So let's see now what the USD, Bonds and Commodities are telling us. Where are we and what should we expect? How are they going to affect stocks? So far we've had a lot of USD weakness because of all the printing, but also because of several pauses in debt repayments. The thing is though that a lot of it has come in the form of debt which is essentially a driver of demand for the USD. The global economy is in a very bad spot and now that things will reopen (for a bit) we'll see how bad things really are. Currently the USD is at resistance against several currencies, but the scariest one is the USDCNH pairs which looks like it has a lot more potential upside. A strong dollar would definitely be an issue and if the DXY closes above 92 I wouldn't be surprised if it got up to 94-95 which would probably cause a relatively big drop in stocks.
The shortage in bonds and the heavily shorted bond markets, as well as the stretched sentiment against the USD are major issues. The reflation trade seems to have come really far, but I don't see this is a boom. It clearly is based on supply side issues and not demand. For example Copper and Oil hit the levels they hit for many other reasons other than money printing. It is extremely hard to produce more Copper or Oil, or many other commodities after so many years of underinvestment. It takes years for some of the production to come back, but until then even the slightest increase in demand can create a big imbalance. And that's a problem for stocks. If the prices of commodities keep going up not because of truly booming economy then those stocks are bound to suffer along with bonds. For years we've had the 60/40 portfolio which might have reached its limited.
It seems like we are stuck between a rock and a hard place. On the one hand if bond yields keep rising then the interest rate differential will benefit the dollar, along with the panic of people needing a safe haven and the USD actually being the only one. In Feb 2020 we saw yields drop a lot (bonds up) and the USD initially dropped hard. The real panic and boom of the USD begun as yields went up while everything else was dropping. We are clearly seeing cracks in the market and overall the whole system is in a pretty bad place. We have no growth, we are locked inside, half of the businesses are destroyed, we are taking too much debt and the whole financial system is based on excess speculation that requires more and more QE, lower rates and support by governments and central banks. Not only that, but we are clearly seeing a lot of corruption and the Fed actually manipulating markets up or down based on what they want to do. So at this stage they might let everything dip and then react. Remember that they are reactive, not proactive. They will react to 'bad things' happening to the market, not try to prevent them (not that I believe they should do what they are doing). They have created a monster than will eventually implode, but for now it seems like the real losers will be those holding fiat currencies and bonds. At least this has been the case so far.
Again if we look at Oil and Copper they look pretty strong. Copper could make new ATHs this year and i wouldn't be surprised if Oil hit 100/barrel. That would be an awful drag to an economy that is trying to get back to its feet. So far Copper seems to have completed its correction and could move higher, while Oil is breaking above key resistance and could keep going. For bonds I see some support close to these levels, but the blow off top we had in March 2020 could easily be the highest they'll get for a really long time. Even if the Fed steps in, i can't see how helpful that will be for bonds, although it could be beneficial for stocks. Maybe the Fed getting in could force bond shorts to close and then stabilize. Gold needs yields to drop, but it looks pretty bad. These trends all across the board seem strong (Copper up, Oil up, Bonds down, Gold down). So at the moment I am pretty neutral and cautious. On the one hand I feel the correction as stocks are still above the 50 DMA and look OK, as well as the USD has hit key resistance with the move in bonds being quite stretched. On the other hand the correction has been fairly small, everyone is betting on reflation, the Fed seems ready to let things drop before it steps in. Oil could keep on pumping and the USD had a pretty strong close last week and seems to have plenty of space to run. So I'd want to see some extra strength in stocks and bonds, with weakness in the USD before I really feel like taking extra risk to the upside. Here it would potentially be the optimal place for risk on trades and if they go against you cut them. I don't think that going short stocks is the optimal trade here and wouldn't recommend in a bull market until we see them turn completely. If they are still above the 50 DMA there is no need to be bearish.
Right now Bitcoin is in a tricky spot. It has gone up a lot along with all other altcoins and the momentum is slowing down. It could definitely get down to 38-42k to wipe out all the longs, retest the breakout zone and then go higher. Maybe it gets down to 34-35k, but that would take a big crash everywhere for that to happen. BTCUSD has only touched the 50 DMA once and I think eventually it will dip below it so that it can create more panic. Most models I am looking at on various websites indicate that we'll get a bottom in the 34-40k area, if we haven't bottomed already. It is actually likely that we have as longs have gone down substantially. So far over the weekend we've seen it go down and slowly go back up to where the price closed which is somewhat bullish. BTC is in a bit of weird no trade zone for now based on TA.
On OKex longs have gone down from 1.7 to 1.05, on Bitfinex we saw a big wipe out (although not as large as the one in January). Funding has remained low for about a week and occasionally gone negative on some exchanges. Premiums on futures have gone down a lot, especially on ones expiring in March indicating longs have gone down quite a bit. The GBTC premium has gone deeply negative potentially both due to longs capitulating but also because there is a lot of competition for Grayscale with many similar products launching, as well as an ETF in Canada and potentially means an ETF or ETP is coming in the US (there are 3-4 active proposals waiting for approval at this point). In general Bitcoin's fundamentals are incredibly bullish as big companies are buying, we have lots of positive news and adoption across all the crypto space as well as lots of positive developments in terms of regulation and access to everyone all around the world. The momentum seems very strong and adoption is moving fast. Based on my models and analysis I can easily see Bitcoin get to 150-250k this year, even if March is a down month (which historically has been the case).
What seems a lot more bullish is alts vs Bitcoin. Alts are showing a lot of strength and I've been talking about this for weeks. Now that we've had several rotations, with different segments of the market pumping and overall alts outperforming Bitcoin, we are moving into the next phase. We have Ethereum and Defi start the dance, which then lead to the rest of the market outperforming as they corrected by 35%. Altcoin dominance seems ready for a massive move up, while ETHBTC seems like it put a nice bottom on the 300 DMA. ETHBTC could get to 0.027 at some point, but it might get to the 50 DMA first which has been absolutely flat for days. We even see that the RSI got oversold and now slowly turning up. It makes sense that now ETH could do better as it perfectly retested the 1300-1440 zone which was the old ATH and consolidation zone. If Bitcoin goes down substantially ETHUSD could get to 1100-1200 but not lower, and overall even if BTC goes down alts won't suffer as much and there will be several parts of the market that do well. Focusing on BTC pairs and not USD pairs is the best strategy if you think BTC will go down.
It's time for stonks! So far the ones that have suffered the most have been big US tech along with Chinese stocks. This is the largest correction we've had since November and we might have even more to the downside. So far my opinion has been since May-June of 2020 that things will go parabolic. Things got really hot, but the fact that big US companies are doing so badly isn't something that won't have an effect on the markets. Yes the rotation to value and smaller stocks has had a pretty big rally and could continue (very likely actually), but this doesn't mean that this correction has been enough. By looking at indices alone, I'd say it is too early to tell. So far this looks just like a perfect retest, trap below the 50 DMA's and then higher. Many indices fell below the 50 DMA after testing it a few times and then bounce hard. We had quite a bit of volatility around the Powell speech and the NFP report which came out better than expected. European stocks actually look incredibly strong and it might be their time to shine, while Asian stocks might take a break.
It's quite likely we are half way through the correction or maybe even 1/3 through it and we'll finally get a 10-15% across the entire board like we did in November. One thing I've mentioned many times before is how once markets broke above their key diagonal resistance in 1998-1999 there were many 10-15% corrections and so far we've only gotten 2. Could this get much larger and painful? Sure, but I don't think we've actually put in a macro top. Initially I had some thoughts that we might have had done so, but it looks unlikely. However it isn't impossible that we see a big correction for reasons I'll explain soon, but we could imagine a similar correction to what we had in Q4 2018.
So let's see now what the USD, Bonds and Commodities are telling us. Where are we and what should we expect? How are they going to affect stocks? So far we've had a lot of USD weakness because of all the printing, but also because of several pauses in debt repayments. The thing is though that a lot of it has come in the form of debt which is essentially a driver of demand for the USD. The global economy is in a very bad spot and now that things will reopen (for a bit) we'll see how bad things really are. Currently the USD is at resistance against several currencies, but the scariest one is the USDCNH pairs which looks like it has a lot more potential upside. A strong dollar would definitely be an issue and if the DXY closes above 92 I wouldn't be surprised if it got up to 94-95 which would probably cause a relatively big drop in stocks.
The shortage in bonds and the heavily shorted bond markets, as well as the stretched sentiment against the USD are major issues. The reflation trade seems to have come really far, but I don't see this is a boom. It clearly is based on supply side issues and not demand. For example Copper and Oil hit the levels they hit for many other reasons other than money printing. It is extremely hard to produce more Copper or Oil, or many other commodities after so many years of underinvestment. It takes years for some of the production to come back, but until then even the slightest increase in demand can create a big imbalance. And that's a problem for stocks. If the prices of commodities keep going up not because of truly booming economy then those stocks are bound to suffer along with bonds. For years we've had the 60/40 portfolio which might have reached its limited.
It seems like we are stuck between a rock and a hard place. On the one hand if bond yields keep rising then the interest rate differential will benefit the dollar, along with the panic of people needing a safe haven and the USD actually being the only one. In Feb 2020 we saw yields drop a lot (bonds up) and the USD initially dropped hard. The real panic and boom of the USD begun as yields went up while everything else was dropping. We are clearly seeing cracks in the market and overall the whole system is in a pretty bad place. We have no growth, we are locked inside, half of the businesses are destroyed, we are taking too much debt and the whole financial system is based on excess speculation that requires more and more QE, lower rates and support by governments and central banks. Not only that, but we are clearly seeing a lot of corruption and the Fed actually manipulating markets up or down based on what they want to do. So at this stage they might let everything dip and then react. Remember that they are reactive, not proactive. They will react to 'bad things' happening to the market, not try to prevent them (not that I believe they should do what they are doing). They have created a monster than will eventually implode, but for now it seems like the real losers will be those holding fiat currencies and bonds. At least this has been the case so far.
Again if we look at Oil and Copper they look pretty strong. Copper could make new ATHs this year and i wouldn't be surprised if Oil hit 100/barrel. That would be an awful drag to an economy that is trying to get back to its feet. So far Copper seems to have completed its correction and could move higher, while Oil is breaking above key resistance and could keep going. For bonds I see some support close to these levels, but the blow off top we had in March 2020 could easily be the highest they'll get for a really long time. Even if the Fed steps in, i can't see how helpful that will be for bonds, although it could be beneficial for stocks. Maybe the Fed getting in could force bond shorts to close and then stabilize. Gold needs yields to drop, but it looks pretty bad. These trends all across the board seem strong (Copper up, Oil up, Bonds down, Gold down). So at the moment I am pretty neutral and cautious. On the one hand I feel the correction as stocks are still above the 50 DMA and look OK, as well as the USD has hit key resistance with the move in bonds being quite stretched. On the other hand the correction has been fairly small, everyone is betting on reflation, the Fed seems ready to let things drop before it steps in. Oil could keep on pumping and the USD had a pretty strong close last week and seems to have plenty of space to run. So I'd want to see some extra strength in stocks and bonds, with weakness in the USD before I really feel like taking extra risk to the upside. Here it would potentially be the optimal place for risk on trades and if they go against you cut them. I don't think that going short stocks is the optimal trade here and wouldn't recommend in a bull market until we see them turn completely. If they are still above the 50 DMA there is no need to be bearish.
Note
Things look pretty bullish. One thing I had forgotten to add and comment on recently was the stimulus that passed. That is a major factor and that's part of why we are seeing especially crypto do so well. Massive boost for us. If 0.1% of the stimulus gets into crypto it is like 2x the recent Microstrategy buying.EU stocks really showed the way as they showed strength. Chinese stocks have been very weak recently and it is a bit worrying, but nothing special yet. Indian stocks also looking very strong. All the weakness came from certain big US tech stocks and not from other ones. To me the value is still the one trending vs growth and I haven't seen anything to change my mind until yields go down and the dollar follows. If they keep printing and rates go higher, value stocks will benefit the most.
In my main idea I had mentioned how strong European stocks look like and many are at new highs or new ATHs. Maybe its part of a weaker Euro + situation in Europe improving + Europe has been lagging tremendously so it might be finally time. People think low rates are good, but they aren't. Low rates signify that there is deflation and the economy is in trouble... so Europe slowly getting off 0 is not a bad sign. Clearly the rate of change for rates matter so I am not saying the should spike for the economy to be healthy. It's just that banks and companies need higher rates than what we have now.
The dollar finally showing weakness after hitting key resistance vs CHF, JPY and others. I still don't like the situation with how certain currencies look (i.e BRL, CNH), but there is hope for now. Gold hit key support and bounced a bit, but if it closes below 1650 I think that's a big problem for everything. It follows rates so closely that if they keep going higher (which they could), it might suffer. Stimulus helps here as well, but let's see. Copper and Oil taking a break which is healthy and hopefully they will go down a bit a lot with commodities so that inflation fears can subside. If Oil closes above 68 we'll have a problem as that would mean bond yields would also rise and so on...
So things are looking better, no crash or anything bad, NDX hit key support levels and we had an average 9-10% correction which could be enough. Alts are looking very strong too and continuation to the upside seems extremely likely. I think we are moving into the next phase of alt season which is part 3. This could be the most explosive and biggest one so far. It could also be the final one, but I think we will have this + 2 more parts before the end. We are in an altcoin supercycle imho and things could get extremely frothy with Bitcoin dominance hitting 20-30%. Nasdaq might have another leg down and stocks might be a bit choppy rather than trend up, but BTC and alts seem extremely strong for me to not be in... At least in BTC pairs
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