Healthy Correction and ABC Pattern - Contd. Part V

Crypto

Last week’s Bitcoin Miami 2023 conference gave us less green in the market than I expected. Attendance dropping almost 50% compared to last year may be a sign that recent price action since January alone was not enough to kindle excitement beyond CT, as well as people less willing to spend $ on the rather pricey tickets due to tighter home economics. Either way, let’s see what the charts are telling us.

BTC/USD

Click here: 1-Day Timeframe

The ABC pattern could technically be complete for BTC. C Wave went lower than the initial A wave, they are approximately the same length (from a price drop perspective), and the lowest wick was only 500$ off from our base case. Price seems to have entered consolidation just as expected, just a bit higher. Now, C waves having approx. the same length as the A wave is not uncommon. Sometimes the C wave can go much deeper than A wave, but at this point we have to consider that the bottom of the C wave may be in. If there is going to be another drop lower, it should happen in the first half of this week. If price breaks above 27,700$ or even flips the descending trendline, that could be early signs that consolidation is coming to an end, and Bitcoin price is ready for continuation upwards. The ultimate level to flip for higher conviction of this being the case is 29k and RSI breaking above 50. 

If on the other hand we get a daily candle close below 16.7k, another leg gets more likely, and my target for that would still be 24 - 25.3k. I have secured most of my short exposure with stop losses at either break even and, for BTC, 27.8 and 29.1k.

No matter which of the two above scenarios plays out, they are both bullish over the medium timeframe (months) as long as Bitcoin price does not drop and stay under 22k in a sustained manner.

BTC/USD 1-day timeframe

ETH/USD

Click here: 1-Day Timeframe

ETH price action resembles more of a bearflag than consolidation like see on the BTC chart in my opinion. RSI is higher on ETH and taking that together with the chart pattern makes me lean towards another leg down for ETH being a higher probability than for BTC. The resistance to break for me to change my mind on ETH still is at 1,867$. A candle close beneath 1,735$ on the other hand increases the likelihood of continuation towards 1,675 - 1,712$, and the lower 1600s beyond that.

Legacy

S&P 500 

Click here: 1-Day Timeframe

As expected the S&P 500 managed to break higher later last week, making the first step on the road towards the higher timeframe fibonacci key retracement levels (0.618 - 0.786). There will likely be hard resistance at around 4,200 - 4,250$, but once that is broken, the road towards at least 4,311$ is open. If on the other hand SPX fails to break through 4,250 and retraces back beneath its 0.5 fibonacci level, we can consider this breakout a fakeout, and will have to reassess next week. One thing seems to be clear, once tech stocks stop pulling in ridiculous amounts of interest from investors, the run on the S&P 500 will likely come to a temporary end at least.

DXY 

Click here: 1-Day Timeframe

Staying on the daily timeframe for DXY this week as well to see the progress we made. DXY broke out of its mini channel, headed right for the 103.66 resistance and is now on its way back down, presumably to retest the channel top at 102.756, or fall back into the channel, in which case, leaving us with what could be categorized as a fakeout. Notice that both DXY and SPX rose on Wednesday and Thursday last week, just one example of what I have been mentioning every now and then, strength in DXY does not necessarily mean weakness in risk assets and vice versa. It all depends on the circumstances.

On higher timeframes the two levels of interest are still 106.05 (0.702 fibs) resistance and 101.83 (0.618 fibs) support for now. 

Weekly Schedule

U.S.

To no-one's surprise US politicians are still milking the debt ceiling drama. Leaving aside the cute fud the White House tried to spread, let’s not forget that congress is still neck deep involved in stock insider trading. What are the chances that they will just let shit hit the fan without first creating an excuse for themselves to dump all their stocks, say being “forced” to sell due to “ethical” reasons? The biggest tell for me that they will reach an agreement on the debt ceiling is the fact that congress has not yet started to cash out big time. The suggested bill, if it’s ever getting passed, will definitely not be ready this time around. But once they are out, don’t listen to anyone still trying to push for bullishness in the market. Double points if Cramer starts talking about new all time highs after congress is banned.

Moving on from my tangent, this week we will get the FOMC minutes from the last meeting. Currently the majority of the market is expecting a hike pause for the next meeting. Let’s see if there will be anything in the notes to convince the market otherwise. In the sea of speeches last week, the Fed’s Logan stressed her view that it’s still too early to pause hikes as data suggests that targets are still not in reach.

Wednesday and Friday (data heavy day) are the main contenders for above-average volatility. 

Eurozone

The focus in the Eurozone will mainly be on speeches by policymakers this week as well. On Monday we will get flash consumer confidence data, and Tuesday Eurozone Manufacturing and Services PMI data. Neither is expected to make big waves in the markets.

Written by: Gunter Lackmann