Welcome to another market overview for the S&P 500, Bitcoin and other cryptocurrencies. Last but not least, we will also look at the development of precious metals, which in recent weeks reflect the considerable interest of central banks in purchasing commodities as an opportunity to cut off state reserves and currency from the US dollar. Gold rose as high as $2,150 an ounce last week. It is correcting higher this week and lingering around $2020 per ounce. Bitcoin rallied above $44,400 on Tuesday, where it encountered selling pressure and the top of the resistance band. Along with altcoins, it corrects growth.
The most volatile cryptocurrencies in the last 24 hours:
Bitcoin rallied as high as $44,400 on Tuesday evening, hitting the upper edge of the resistance band and selling pressure. It has since corrected slightly, falling to $43,180 today at the time of writing. Big part altcoins they easily correct and some write off even lower tens of percent. Will this decline continue, or is it just temporary profit taking and exposure limitation from traders or “Smart money” and institutions?
Calendar for this week and macro economic window
The second half of the week is calm for the time being and the macro calendar brings mostly unsurprising information as expected by analysts. One aspect that defies expectations is the drop in new job openings in America. On the left we can observe a sharp continuation of the decline -617,000 positions month-on-month! Similar long-lasting declines reflect employers’ uncertainty about the further development of the economy.
Another one this time a leading indicator of the state of the economy is employment in truck transport (graph on the right). Another rounded peak is forming on it, which is a harbinger of an economic crisis. Trucking companies seem to be able to discern customer and consumer demand ahead of time. As a result, he dismisses the driver just before the onset of the economic downturn, when the consumer already spends significantly less (because he has trouble repaying his debts with high interest rate).
It is possible that I am currently deferring this situation to credit card companies and companies with a “buy now, pay later” model. They endure late payments and will probably have to write off a significant portion of the debt provided to American consumers.
Other interesting data are falling retail orders in Germany (-3.7% month-on-month) and a drop in GDP in the eurozone on a quarterly basis.
Today we still have an announcement to make inflation from Germany and total unemployment in the United States. US unemployment is expected to remain steady around 3.9 percentage points, but I wouldn’t be surprised to see a slight increase.
Who would have thought that he currently has an American one central bank Fed and the US Senate under control, will probably be VERY far from reality. Overall inflation is also falling thanks to the sharply falling price of oil and natural gas, which is reflected in the prices of goods. However, core inflation is more resilient and will take longer to reach the target of two percentage points per year. In the meantime, until the US central bank Fed is able to cut interest rates somewhere around the turn of April/May 2024, the US government has a lot to think about.
The current state of the American economy and the significant budget deficit have swelled the already large government debt, which continues to grow. They get into a state where a total debt of over $33 trillion combined with interest rates over 5 percentage points has driven national debt repayment over $1.1 trillion per year!
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To put that in perspective, the United States will generate $4.4 trillion in taxes in 2023. That is, over 25% of all income to the state budget goes to repaying the state debt. This is 34% more than the $821 billion defense budget.
Another interesting comparison of the status is the graph at the top right. In 1930, the US dollar (government debt) was 100% backed by gold. The price was around $20 per ounce. Subsequently, in 1970, the dollar was separated from gold.
If we were to assume 30% coverage of the US debt with gold today, the price of gold would have to be around $7,250 per ounce. Assuming 100% coverage of their debt, we would have to consider a gold price of around $24,000 per ounce!
Thus, the American government has been devaluing the dollar for a long time since 1970 and subsidizing its economy by exporting debt to foreign countries that hold its bonds. The question is where it breaks. Many advanced powers are beginning to realize this and are gradually buying precious metals. To give an idea, China’s central bank accumulates tens of tons of gold per month. He’s one of the big players driving his price up. They buy more in months with a lower average price below $1,950 per ounce.
I expect this trend to continue from other central banks as well. The United States will have to offer higher (more attractive) interest rates on its bonds to get people to buy them. This complicates the situation even more, further increasing their debt problem.
Development of rates on US government bonds
Interest rates on US government bonds have seen a sharp decline over the past 4 weeks. Ten-year bonds climbed as high as 5.022 percent annually. Today we are around 4.148 percentage points and the daily candle signals a search for a local bottom. It is very likely that this several week decline will turn around and we will grow back to the last resistance zone around 4.39 to 4.47 percentage points. They indicate such a development on the daily chart RSI indicators a MACD by its effort to gradually round up. Another indication for at least a short-term reversal of the trend is the achievement of the daily EMA 200 1D moving average on the chart below (orange line).
The S&P 500 stock index is looking for a local maximum
The S&P 500 stock index is rising below the main resistance zone around 4600 points this week. On the daily chart, we can see the effort to overcome the descending line (turquoise). Many investors perceive this development positively, but we will tell you why this may not be the case.
Outside the selling pressure of the main resistance zone, strong divergences of the RSI and MACD indicators are forming on the daily and three-day charts. It is most visible on the two-day chart you have below. It is appropriate to be careful and maybe take at least part of the profit on some positions. Technology and the fintech sector have been growing the most in recent weeks. I myself have sold almost all positions in these sectors this week.
There are still other arguments for negative development unfilled gaps below the current price level. What’s worse, these gaps are not only on the futures chart, but also on the regular chart of the S&P 500. I can’t imagine further growth to new highs without without filling these gaps. The nearest gaps are around the levels of 4420 and 4234 points. The lowest is around 3960 points. This could mean a drop of up to 15 percent from the current price level.
A positive growth variant of the development is, from my point of view, very unlikely, and already now investors expect a very favorable development and a smooth landing of the American economy (“soft landing”). I don’t think the Fed will do its job very well. The American government is making it very uncomfortable for him with its waste of money and deficit budget.
Therefore, if the stock indexes rise higher, it will be further driven only by large technology companies (top 7 companies from the S&P 500 index), which are already reaching historical highs and are significantly overvalued.
Bitcoin is struggling for the upper resistance band of $44,000
Bitcoin has swung to the upper part of a wider resistance band in recent days after breaking the ascending triangle at US 38,000. Resistance ranges from $40 to $44,000. The secondary cap is up to $47,500.
Similar to the S&P 500 stock index, we can already see the formation of divergences on the daily chart. So the question arises, when will the profit taking and correction of the previous growth come? If my reasoning is correct, we are in the final stages of completing another impulse wave up from the November 2022 local low.
The key question is: Is this the second impulse wave of a larger cycle (new bull market)? Or is it completing corrective wave (c) of the entire decline from $69,000 to $15,400.
The correct answer will only be clear in retrospect in a few weeks. Currently, however, we can significantly limit our risk by, for example, selling part of the profit. I’m already starting to see significant retail FOMO in the market. Even people who are potentially new to Bitcoin have missed their chance. This solidifies me to stay away at this point. Nothing grows to the sky in one line and therefore a correction will come sooner rather than later.
In this situation, it is not clear to me if Bitcoin is copying the movement of the S&P 500 stock index or Gold and other precious metals. Therefore, I want to approach it cautiously with the assumption that it will copy riskier assets like stocks.
If my bearish reasoning pans out, the downside could take us to significant lower levels below $30,000 (and maybe a lot lower). However, I am considering this in the event of a recession in America (hard landing). A positive option is a continuation of growth up to $47,000 and a subsequent correction to levels around $34,000. There I would like to decide whether to jump into the trend or not.
Gold corrects to $2,030 an ounce, forming a new all-time high
Gold had a nice run last week, breaking through long-term resistance at $2072/oz and continuing up to $2150/oz. I assume that breaking long-term resistance triggered a large number of stoploss orders on the short positions. They were forced to close positions by buying, which pushed the price of gold to a new all-time high.
Subsequently, strong selling pressure continued and the price fell back to $2,010 per ounce. As we can see in the graphs above, China’s central bank has been buying significantly more in recent months around the $1,950 per ounce price levels. It is important to mention the premium on the Shanghai Stock Exchange, which has been around 2% for the last time. As a result, buyers in Shanghai are willing to pay about $40 more per ounce of physical gold than elsewhere in the world. This brings us closer to the current price of $2030 per ounce, which we have been holding for the last 3 days.
As a result, I cannot assume anything other than interest in these prices slightly below resistance. This adds to the positive sentiment for precious metals. At the same time, the structure that has been forming for the last 4 years is very positive. Therefore, I expect further buying interest and an increase in the price of gold (subsequently also silver).
Slight divergences are forming on the weekly chart, so we can easily stay at the current prices for a few weeks. If the price of gold does not fall below 1934 USD per ounce, then there is still a valid option for further growth.
Finally, I would like to warn investors not to jump headlong into gold just because it is headed for new all-time highs. While owning physical gold may sound simple, it is necessary to study what you are actually buying and what fees or complications are associated with it. The alternative is stocks of gold and silver miners. I’ve been messing around with them for a few weeks now, and I can only recommend extra caution. A similar caution applies to cryptocurrencies. More than 90 percent of miners will probably lose you money.
You can, however, buy an index of miners’ shares, which will appreciate nicely if there is indeed a bull market in precious metals. Even so, it is advisable to do your own fundamental analysis. Personally, I rather choose specific companies that I expect to be profitable and produce money even if gold does not rise further. You are not jumping on a bandwagon, be careful.
2023-12-08 13:07:51
#Market #Review #Bitcoin #Hits #Resistance #Gold #Hints #Upside #Recession
