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Nasdaq and Bitcoin: Grinding support as USD, FOMC make waves – DailyFX | Omd Cialis

Nasdaq, Bitcoin Talking Points:

  • Both the Nasdaq and Bitcoin are testing key support points after aggressive sell-offs.
  • It’s been a brutal 2022 for Bitcoin but much of that pain was relegated to the first half of the year. Things weren’t much better on the Nasdaq, and both are sitting on important pillars ahead of next week’s FOMC.
  • When markets go into risk-averse mode, we often see correlations leveling out, but that doesn’t mean the correlation will last and therefore makes it difficult to strategize.
  • The big driver of both bearish trends has been higher interest rates, and that may remain so until we reach a point of capitulation at the Fed.
  • The analysis contained in the article is based on price action and chart formations. To learn more about price action or chart patterns visit our DailyFX education Section.

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Bitcoin is back in a very important zone of support. I’ve been following this for the past few months as it was the first area to finally stop the bleeding of the March-June sell-off. This ranges from the 2017 swing high at $19,666 down to 78.6% Fibonacci retracement of the big move 2020-2021.

Bitcoin weekly price chart

btcusd weekly chart

Diagram created by JamesStanley; Bitcoin on trade view

When this area came into play in March, buyers slowly returned to the market as a bullish channel formed. But given the pace of the previous sell-off This bullish channel was a bear flag formation, and that began to give way in late August, about a week before Chairman Powell’s Jackson Hole speech. Interestingly, that’s also around the time Sellers started hitting back at the Nasdaq after a two-month rally off the June lows.

Bitcoin dipped back into the support zone in early September but soon found support at the late June low, leading to a bounce that carried into this week’s trading — through to the end Tuesday’s CPI release. And like the Nasdaq, both markets were beaten based on this data. But – interestingly, Bitcoin is holding at a higher low at this point – above this swing from last week – as is the Nasdaq.

Bitcoin daily chart

btcusd daily chart

Diagram created by JamesStanley; Bitcoin on trading view

Bitcoin short term

The $19,666 level was back in play yesterday, albeit very quickly. Buyers quickly returned and prices jumped back above the psychological $20,000 level. Since then, however, there has been a trend towards lower highs, resulting in a descending triangle in the short-term. This is a bearish formation and this keeps the door open for another support test in the near future.

(Note): At the time of writing this report, the descending triangle A break took place and now the prospect is set for another support test around the $19,666 level. If bears can push down with a lower low, then we have a new lower low and lower high, which equates to a bear short-term price movement trend. The next support would be the late-June low, which helped rally last week.

Bitcoin hourly chart

Bitcoin hourly chart

Diagram created by JamesStanley; Bitcoin on trading view

Nasdaq

I checked the Nasdaq on Monday So this will be relatively short compared to bitcoin. And finally, there’s a certain similarity here, so there’s no point in hashing again.

Much like Bitcoin, the Nasdaq peaked in November of last year. November is key because that’s also when FOMC Chairman Jerome Powell floated the idea of ​​temporarily “retiring” the word. Until then, the Fed had dismissed consistently higher inflation rates of 5 or 6%, saying instead that the price hikes were due to supply chain issues. Well, those supply chain issues never really abated and as of Tuesday inflation was at 8.3%.

There are some real concerns about this. Past examples of elevated inflation have shown that it is an elusive problem. Once the trend starts, there aren’t many ways to slow it down other than raising interest rates to draw capital out of the system. And the way this is done means that leverage is under pressure as higher interest rates mean higher borrowing costs and also higher opportunity costs for that capital.

After all, the main reason for keeping interest rates low is to encourage investment to boost economic growth. And that is exactly what has happened for much of Bitcoin’s life and for most of the last 13 years for the Nasdaq. As this relationship counteracts the Fed’s goal of tightening rates, both markets see bearish scenarios.

In the Nasdaq, the big level right now is the 12k level. The price has not broken below this price since its July surge and it remains an important point for the potential support for bearish approaches. Resistance was in play earlier this week just ahead of this CPI report hovering around the 13,000 level.

On the 4 hour chart below, we can see a mass of candlestick wicks just above the 12,074 level and this is pretty clear evidence that buyers are coming in to support the lows.

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Nasdaq four hour price chart

Nasdaq four hour chart

Diagram created by JamesStanley; Nasdaq 100 on Tradingview

Larger picture of the Nasdaq

This Tuesday was a pronounced sell off and this is still reflected in the weekly chart. This also puts strong emphasis on the support around 12,000 as this week’s bar can still end as a bearish engulfment, which would keep the door open for bearish continuation scenarios in the big picture ahead of next week’s FOMC.

Even without completing the bearish engulfment, sellers will maintain semblance of control until they can make a sustained break above the August high.

Nasdaq weekly chart

Nasdaq weekly chart

Diagram created by JamesStanley; Nasdaq 100 on Tradingview

Bitcoin & Nasdaq – the relationship

In my opinion, these are vastly different markets and assets that share a common relationship, being propelled higher by low interest rates and an excessive appetite for risk.

And now this is happening as the Fed is clearly aiming to reduce inflation. And they can’t afford to miss out on that as previous examples have shown that the problem is getting worse and worse and the worse it gets the higher rates have to go to get rid of the problem for good.

So while there will likely be a correlation between the two macro risk assets as the Fed hikes rates, I expect that relationship will eventually separate, much like we saw in 2018 when the Fed was busy raising rates four times to lift . This year, capital continued to exit bitcoin at a faster rate, to the point where a correlation coefficient fell from 0.89 in January to -0.8 in August.

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Bitcoin weekly chart – correlation coefficient to Nasdaq futures

Bitcoin BTC weekly chart

Diagram created by JamesStanley

Bitcoin and Nasdaq – longer term

I’m not a fan of being on the bearish side of the markets. But I also recognize the need to at least try to be objective. And I’ve been bearish on stocks for a while now, and I still am today.

I am similarly bearish on near-term bitcoin prices. But one important caveat – I am also bullish on bitcoin in the longer term, and if anything, I see this upcoming bearish scenario as a longer-term point of possible opportunity. And perhaps the same can be said for the Nasdaq, but this picture strikes me as a bit bleaker. With bitcoin, it’s the finiteness of the asset that makes it appealing to me, and given that the US government hasn’t acted more forcefully on the matter, it suggests to me that there could be some more for a long time to come . long-term opportunity once a bottom is in place.

But where is the bottom, that is the big question? And really, I don’t know… I expect some strong revaluations in the markets and the one expectation I have of the bottoms is that they will show up when very few want to see anything on the long side. And given this ongoing indication in Bitcoin (and the Nasdaq) – we’re not there yet.

— Written by James Stanley, Senior Strategist, DailyFX.com & Head of DailyFX education

Contact and follow James on Twitter: @JStanleyFX

Updated: September 17, 2022 — 1:32 am

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