Welcome to another market overview for stock markets, Bitcoin and other cryptocurrencies. Last night Apple, Amazon and Meta reported after the market closed. Many are enjoying a significant positive surprise. Let’s take a closer look at what the companies announced. Bitcoin is hovering around $43,000 this morning, leaving room for altcoins to grow. Gold rose to 2065 USD per ounce yesterday, which will undoubtedly try to overcome historical resistance. Jerome Powell hinted at keeping interest rates on hold until May 2024 at a press conference on Wednesday.
The most volatile cryptocurrencies in the last 24 hours:
Bitcoin is holding between $42,000 and $43,000 so far this week, thereby leaving space altcoins to light growth. In the analysis below, we will look at what the current structure could mean and where the Bitcoin price may go in the coming days.
Macro calendar and results season
This week was the most anticipated event of the American meeting central banks The Fed and Development Decisions interest rates. Rates were unchanged, as expected by the Fed WatchTool. According to Jerome Powell’s speech and subsequent press conference, several important facts emerge:
- At the January meeting, no Fed representative suggested a rate cut,
- Cutting rates too quickly could reverse the downward trend in inflation. Keeping rates high for too long can slow the economy. The Fed is in a sticky situation.
- Labor market looks strong according to Fed
- Powell does not think that they have (yet) succeeded in achieving the “soft landing” expected by the markets (and included in the stock indices)
- Apparently, we cannot expect a rate cut even in March
On the right side, we can see a comparison of rate developments according to the Fed Watch Tool. The likelihood of keeping rates on hold in March rises from 60.2% to 61.5%, although Powell indicated that a cut is not yet on the cards. However, investor market sentiment remains for 6 to 7 rate cuts in 2024.
Are investors overly optimistic? We can see a similarly significant expected decline in the development of 10-year US bond yields. It drops sharply to 3.89 percent from the zone of 525 and 550 basis points, which means that bond investors they price 6 to 7 reductions now. Assuming that the maximum rates have already been reached, a return to the support zones of around 3.7 or up to 3.5-3.3 percent returns is possible.
An attentive reader will definitely notice the development of rate growth from 2020 in five upward impulse waves on the yield chart. If we are currently forming corrective waves, I would look for a decline to support zone 2. Subsequently, it is necessary to mention that upward impulse waves are never unique. This means that after the completion of the corrective wave, another five-wave upward impulse structure may occur (the probability is high enough that we have to consider it).
Whether another wave of inflation will come and what will trigger it is a matter of strong speculation, but it is necessary to consider this possibility. (As a possible reason, I would see another wave of inflation triggered by the easing of Fed policy (due to an election year) and the printing of more debt. Another possibility is the rapidly increasing cost of shipping. Its cost rose over 100% in January, thanks to the extension of the route around Africa.
In the next graph above we can see that almost no one expects a strong increase in inflation. That’s it there are turning pointswhen there will be a large part market surprised by the new development trend. Market sentiment suggests clear confidence for a decline in inflation and “soft-landing“.
Another interesting piece of data this week is the development of GDP in the eurozone, which remains around 0% and in Germany even slightly decreases by 0.3% year-on-year. Europe is clearly in economic recession. Yesterday we got data for inflation from the Eurozone. Overall inflation is slightly decreasing year-on-year from 2.9 to 2.8 percent. Core inflation from 3.4 to 3.3 percent.
From the United States are still published a growing request for support in unemployment. Is it possible that the end of the year and the wave of layoffs will ultimately affect the growth of unemployment? You can see a summary above of the most significant layoff announcements in the past three months in American companies. This trend is also starting in Europe, where just yesterday Deutsche Bank announced its intention to lay off approximately 3,500 employees in order to reduce costs.
The results season brings positive surprises
Earnings season today brings positive surprises from major technology companies. They reported last night after the market closed results of Amazon (+6.3%), Apple (-2.3%) and META (+16%). The most significant growth is recorded by META (Facebook’s parent company). The company posted results that beat analysts’ expectations for both revenue and profit. Overnight, it increases with this growth market capitalizationio 150 billion USD (ie approximately 1.2 trillion USD).
These increases are similarly striking to Nvidia, which has increased its valuation by approximately $500 billion over the past 2 months. Investors continue to speculate heavily on a small group of companies. As a result, in just one year, the Magnificient 7 group went from an oversold zone to a heavily overbought zone.
Development of stock markets
The market sentiment of the stock markets in America is best represented by the S&P 500 index. It has been pulled up only by the technology sector for almost a year. The Druckenmiller indicator also shows this nicely. It is the ratio of the performance of cyclical stocks (sectors) to the entire S&P 500 stock index. The indicator has fallen to the lows of 2008 and 2000 in the last month.
This is a very similar development to the leading LEI indicator. Out of 11 constituents, the only one growing is the S&P 500 stock index. We are receiving a number of negative signals about the poor state of the American economy. Despite this, tech stocks are skyrocketing with continued stronger (more speculative) investor sentiment.
Before we look at the chart of the S&P 500 index itself, we will describe the so-called “Buffet indicator“. The indicator describes the ratio of stock market valuations to the GDP of a given economy (in this case the United States). Currently, it has already surpassed the level of the overvalued market and is entering the zone of strong overvaluation.
By breaking the resistance of 4900 points se the S&P 500 enters the overbought zone. Currently, on the two-day chart (at the same time, on the 3-day and weekly chart), we can see the formation of the divergence of the RSI and MACD indicators. It is the complete opposite of the situation that occurred at the end of 2022 (convergence formed). Therefore, I am on the lookout and take it as a strong sell signal.
Now, with a high probability, it is only a matter of time and efforts to attract as many retail investors as possible to the market, before the big players dump it on their heads. The fundamentals of the technology sector must be set aside. It is time to take profit and focus on sectors that are on the contrary in the lower phase of the cycle.
Because of how passive investing has become, the S&P 500 can continue to rise slightly, with many people sending money there on a regular basis every month (the DCA method). Of course, large funds know this, and they can unobtrusively sell their positions without it being visible from the price action on the chart… but it can be seen precisely on indicators such as RSI and MACD.
If (until) there is a situation of decline back to 4600 points, the game will be to save the yellow growth channel. Then they come into play unfilled gapsthese stretch up to 3967 points (-21% from current levels).
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Bitcoin remains at $43,000
Bitcoin has remained in a sideways indecisive trend for the past few days after rising again from $38,500 to $43,000. This gives Altcoins the space to erase part of the losses of the last 2 weeks.
The eight-hour chart best meets the needs of showing the current situation and support whose resistant zones. On an intraday basis, the rise from $38,500 to the current $43,000 looks like an impulse wave. This leads me to the idea of a possible double top if we break through the resistance around $43,600-$44,400. In that case, I would look for the formation of another smaller upward impulse wave (yellow option).
In the event that we start to decline from the current levels, the support bands marked in green come into consideration. I would be more likely to bet on a decline to $33,400. But if there is a positive mood for the S&P 500 index after the opening today, it may speculatively take Bitcoin up with it.
The worst possible option is a drop to $31,000 and a break below that level. In that case, I would be inclined to sell it all and open up short position. Quite possibly we would get back below $20,000. But for that, market sentiment has to drop significantly. For now, it is maintained by expectation bitcoin halving at the turn of March and April.
The price of gold is trying to break an all-time high
At the same time, we can observe an interesting development on the graphs of precious metals, gold again it is trying to overcome the historical resistance level around 2075 USD per ounce, which has been taking shape since the summer of 2020. After three rejected attempts, it could finally succeed. In case of breaking the level, I expect significantly higher interest from big players and the media, this will also attract small investors jumping into the already started trend.
Gold is followed by its partner silver. I believe it will be the same in this case. Silver is in a slightly different long-term triangle formation from 2020. It can also be interpreted as a continuation of the initial impulse wave from the bottom formed during Covid. Thus, I give a significantly higher probability of the continuation of the upward trend. In the long term, we should move within the white growth channel.
While gold in my opinion can calmly rise to USD 2500 (+22%) per ounce by the end of 2024, silver has the potential to reach the historical distribution zone around USD 40 per ounce.
This development of gold and silver suggests to me that something is very wrong with the stock indexes and the US economy, and many people (and especially central banks) are returning to gold as a hedge against uncertainty or inflation. Be careful, not only commodities are giving us strong warning signals.