Last week did not disappoint those that wanted some price action, but many like me, might have been surprised which way the prices went. 75pts interest rates hike by FED was expected, but JP’s comments on fighting inflation by means of waiting for more data (PCE coming out 2 days later higher than expected, surprise surprise) added fuel to risk on assets rally. Logic behind it being (especially after 2nd quarter of negative GDP in US, technically meaning USA is in recession) if there is recession and inflation already peaked, FED will pivot and no longer need to hike aggressively most likely stopping at 3.25-3.5% this year.
That leaves the door open to high volatility every time we get inflation and employment data in Aug and Sept. Stock market will then have to correct sharply if inflation keeps going up (in fact pay attention to MoM as even if that reads 0% which is extremely unlikely for the remainder of the monthly reports in 2022, we will still not see 2% target that FED is trying to achieve) and employment data stays strong.
Summer of War
The above is a cover from 28th of June Trends Journal and seems very accurately depicting the events unfolding in last 24-48h.
Unrest on Kosovo-Serbia border - Serbia is backed by Russia and Kosovo has NATO units stationed with mandate to defend in case Serbia does attack
Nancy Pelosi tours Asia - possibly not much in it if not for her planned then unplanned and now confirmed again stop in Taiwan, that China said openly could trigger their military response and excuse to invade. If she does not go there a sign of weakness from US if she goes and another war starts they are to be blamed. A lose lose scenario… unless US & NATO want war.
Ukraine-Russia of course not stopping and minor other conflicts popping up here and there.
If you are in long positions or were wondering whether to take some profits on any buys from recent lows, it might be a good idea just based on the above to keep your finger on the sell trigger.
Weekly Overview
Geopolitical events aside this week will bring some more earnings including of PayPal and AMD, few of FED members will speak and possibly turn around the mildly dovish tone into hawkish, finishing the week on US unemployment data and NFP could just be the last straw and push risk-on assets lower.
For traders, the short setup posted on 20th July is still valid, giving another opportunity to either take profits or re-enter riding this weak looking rally.
Some of the on-chain data (MVRV and NUPL) support the fact we might have seen the bottom on Bitcoin already, but not unanimously confirming we are out of the woods yet. At least a revisit of lows is very likely and if there will be any hint of FED hiking by more than 50pts in Sept or some conflicts getting out of hand quickly, expect to see 10-14k.
Another interesting thing looking at VIX (Volatility S&P 500 index), that all bear markets and definitely those that triggered “recession” in the past, at least once hit over 40, this has not happened yet this time, so yet one more argument against this down trend being over.
When zooming in on current bear market, you can see we’ve been in similar situation few times before and VIX turned up sharply when next leg down was starting, which no surprise coincided with Bitcoin (light blue) posting new lows. We are clearly at this point again, so watch that chart closely this week.
While Crypto Tweeter celebrated BTC closing above 200WMA last night, I think there is still more pain to come. My main advice stays the same, if you are long term holder keep buying weekly with aim to be able to do this by mid October at least, when I think we can realistically start thinking about bear market bottoming out and look for some positives in macro unless Summer of War turns into Autumn of Madness and Coldest of Winters (at least for Europe).
Still holding cash, thanks for the weekly updates 👍🏻