The Weekly Open 21 Sep 2020

BY ON September 21,2020

Weekly Heading

In this ‘Market Open’ there are a lot of thing I’d like to cover, and it is coming out late precisely because of that. Last week there wasn’t one although I’ve shared several ideas on Tradingview which I’d recommend you read. The reason I didn’t share them here is that they were a bit more chaotic and I was actively commending, while now I’d like to present something more solid.

For those that have read my previous posts you’d know that I’ve been bearish/neutral and tried to have a more ‘step by step’ approach as the situation was a bit tricky. To me it was clear that the altcoin cycle had turned, but I wasn’t sure for BTC as I want to see its reaction on the 11.1-11.5k resistance zone. When it comes to alts there isn’t much to commend as it was extremely clear for several days, if not weeks that the first mini cycle (out of the 3) was over. In my opinion it will take alts quite some time to really recover although there will be some strong bounces on the way down.

By the way things look right now I’d expect Bitcoin to dip to the 7-8k area, wipe the longs, take premiums deeply negative and then have a massive rally towards 14k (and even 20k) by the end of the year. My reasoning is that the liquidity from alts will flow back to BTC, along with all the stablecoins that have flooded the market and the reduced sell pressure due to the halving will take Bitcoin much higher regardless of what traditional markets do. Essentially tons of liquidity + Bitcoin being cheap relative to most other assets + S2F/4year cycle + more printing/banks collapsing could lead to a massive bull run.

The main problem Bitcoin is facing right now is that there are still quite a few longs and that alts aren’t done deflating vs the USD (they will deflate more vs BTC later). Of course that isn’t the only issue as we are getting into the ‘Insolvency phase’ Raoul Pal has talked about a lot. More lockdowns & Covid not being under control, economies facing issues & unrest, too much debt and all that right before the most ‘heated’ US election of the last 40+ years. All that is happening right when the USD was trying to bottom at a key support area (92 on DXY) and at the moment it looks like it has confirmed its reversal.

Now let’s get into traditional markets!

1) Bonds – It is very clear that they are still in an uptrend. They are sucking more liquidity out the system and the Bond market is predicting deflation. It isn’t buying any of the nonsense from the Fed about money printing or achieving their inflation targets. Even if bonds start selling off because of inflation, due to the size of the market and how high they are along with the Risk Parity funds… this could be devastating. Real rates going up definitely won’t be nice and in my opinion rates will go negative (so bonds higher).

2) Forex– EURUSD seems to be breaking down after from what it looks to be distribution / round top at key resistance (horizontal + diagonal + Yearly R3). GBPUSD is at support but looking weak. JPYUSD is slowly breaking out (not USDJPY). USDCNH bottomed right at key support and gap fill (+Yearly S1). USDMXN & USDZAR bounced hard, but still in a downtrend (they just became too oversold and hit key support). USDTRY keeps going higher and higher as Turkey’s economy is suffering and their FX reserves are depleted.

My view is that the Euro could get down to 1.14-1.15 or essentially the DXY getting to 96-97. I’d expect it to bottom there and give at least a strong bounce, because if not… we are in big trouble globally. The Yen going up isn’t bullish in general and I’d consider it a more bearish signal than the USD itself going up. The Yuan bottomed at key support so there isn’t that much to say. Although I was seeing a potentiam USD bounce coming vs EM currencies, I didn’t expect it to be that strong and I didn’t take as much profit as I should have (on the rest I was stopped out). For the Turkish Lira I see no hope and is the cleanest one to be long (buy any dip).

3) Stocks – My final targets based on my latest analysis was 3180 for SPX and 10400-10600 for NDX. SPX has filled all the major gaps but could go lower, while the NDX has hit the top of the log channel and bounced nicely so far… Yet I don’t think it will be that easy and the reason is that until now other stock markets hadn’t really moved but were sitting in a tight range between key support & resistance. For most the support has broken and they aren’t looking great. Today the Nasdaq has fallen less than most other indices including DJI & SPX. At the same time bank stocks especially look like they are in big trouble, something I can’t ignore.

So far I’ve been of the opinion that NDX will go to 19k after this healthy and expected correction is over, and I still believe that as long as it doesn’t close below 10k this is possible. 9950-10200 is a really nice area for a potential bottom and a max pain scenario. 10-20% corrections in a parabolic run seem pretty normal and we’ve seen that with BTC in late 2017 as well as NDX in 1999. Finally the VIX is still pretty low compared to the environment we are in and I’d expect to to hit 50 before markets bottom.

4) Metals – Gold and Silver took a big hit and I think it is normal based on how the USD moved. However it isn’t just that they dipped a lot, but that they both lost key support and their next support is much lower. For Gold it is at 1820 (short term) and then 1740-1780. For Silver below 23 I think 19 is coming which was the key breakout zone (throw back into the accumulation zone). Both metals got extremely overbought really quickly and their run was unsustainable, although I believe both will go much higher in 2021.

So as you can see everything is aligning pretty well for a bearish case. Dollar up, everything corrects pretty hard after getting extremely overbought and then the trend resumes to the upside. As stocks have been falling for more time and they aren’t as expensive, they might suffer a bit less… but a 2-3% dollar move will easily cause a 5-20% move down for most assets (including crypto). Right now I don’t wanna get into a doom scenario where stocks crash completely as I don’t believe it is likely (yet). It is better to go step by step and follow my initial plan which is to play the bounce when EURUSD gets to 1.14-1.15.

Even though I’ve been bearish/neutral since the beginning of September (in the short/medium term), I’d also like to say that things might not be as bad as I believe they are. Bitcoin is still above 10k and shitcoins are getting quite oversold (short term). It could test 9.2-9.8k and then bounce hard, without having to go to 7-8k. Maybe the shake out/bounce of USD vs EM is over and it is about to roll over. Maybe the Euro is confusing/chopping everyone before it breaks above its resistance. Maybe this was a major shake out for Silver and Gold, to sweep the support and slowly reclaim it. Maybe touching the top of the NDX log channel and filling the major gaps were enough for the market top bottom. In conclusion, things are looking bleak short term, yet we must not forget that for now the long term trends are still bullish for most of these assets.

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