The new Omicron strain spooked the markets, but not by much. Meanwhile, the price of Gas has broken new records. What can we expect from the markets in the near future?
- AUD/JPY +1.32%. Trading up with $100 and a X500 multiplier, you could have easily made $660.
- AUD/CAD +1.41%. Trading up with $100 and a X500 multiplier, you could have easily made $705.
- Nvidia -3.48%. Trading down with $100 and a X20 multiplier, you could have easily made $69.6.
Over the week, “Safe Havens” continued to give up their positions. AUD/JPY gained 1.32%, GBP/JPY gained 1.16% and NZD/JPY gained 1.04%. Last week on Wednesday 23.12, the Bank of Japan published their meeting minutes and on Monday, the Japanese government approved a record-breaking economic stimulus package. As a consequence, the Japanese Yen declined against other currencies. USD/JPY once again broke through the 114 level.
In the classic options market, the 2-week delta call options with a strike price of 113.6 is 0.72. Most market participants are therefore confident that USD/JPY will remain above this level in the next 14 days.
Meanwhile, it is worth paying attention to the fact that on the 1M TF the price is near the resistance level of 114.50 and the Stochastic indicator entered the “overbought” area.
Therefore another correction cannot be ruled out, but opening “short” positions is possible only if there are confirming signals. If not, it is better to stay “long”.
Last week the stock market once again shook up a bit. Dow Jones broke below 35,000 points on Monday 20.12, forming a gap at the opening bell. The same thing happened with the Nasdaq100 and S&P 500 indices, which fell below 15,600 and 4550 points respectively. However, later the United States was able to regain their positions.
The reason behind this volatility was again Covid-19, or more precisely, the new strain of the virus – Omicron. According to the World Health Organisation, the new strain has already been detected in 106 countries and most of the cases are in Western Europe.
Increased volatility in the market makes speculative trading more attractive, but the current fundamental picture remains worrisome. Most blue chips are trading with extremely high P/E ratios, indicating a large overvaluation of companies. Let’s take a look at the FAANG sector.
As you can see, the most “overvalued” stocks are Amazon and Netflix. The third place goes to Apple. Meanwhile, from the technical point of view, the situation is still favorable to bulls. Netflix stock on the 1W TF bounced off trend line support and at the same time, several indicators reversed. For example, Williams%R, came out of the oversold area. For a trend reversal to be confirmed, the price needs to break below $575, followed by a retest and then a breakout of the more global support in the $500-540 range.
There are two main reasons for the continued growth in the markets – first, there is a huge amount of unabsorbed liquidity. In other words – there is still a lot of free money on the market. Second is buybacks. During the week of 13-17.12, large-cap companies (MarketCap>$10B) bought back a total of $21B worth of stocks from the market. By comparison, that’s more than the same amount for the entire previous month.
Most notably, over the past 12 months, Tim Cook’s company has been the leader of buybacks.
In the current conditions, recommendations for the stock market are as follows: buying securities for the long-term looks very risky (keeping in mind the risks from Covid-19, growing inflation and tapering of QE). Nevertheless, bullish trends in some securities remain which means it is possible to open long positions on shorter time frames.
Brent is trying to break through the key local level of $76 per barrel. If the bulls succeed, the asset will come close to the downtrend line as resistance, which is quite possible to be broken as well. An important level for the bulls will be at $77.50. A breach of this level will likely point to a change in the trend.
Stats from the United States assisted the growth of price. According to the EIA report, Crude Oil Inventories decreased to -4.715M. Analyst forecasts were for a decrease to -2.750M from -4.584M for the previous week. Oil production fell by 100 thousand barrels to 11.6M bpd.
At the same time, the load on U.S. refineries decreased against the background of a higher growth of petroleum products stocks amid a slight decrease in demand. The spread of the new coronavirus strain is still limiting the movement of people during the holidays.
The latter could have a negative impact on prices. More and more countries are imposing additional restrictions. Germany, Scotland, Ireland, Portugal, the Netherlands and South Korea have already restricted gatherings of people on New Year’s. The World Health Organisation predicts a peak increase in the number of Omicron infections in February of next year.
Gold once again broke through the psychological level of $1800 per troy ounce. The weekly chart shows that the asset is between two trend lines: long-term downtrend and local uptrend.
Also, the price is inside the $1750-1830 price channel, in which Gold has mostly remained since June of this year. The Aroon indicator points to the continuation of the uptrend. However, the breaking point will occur only after a breakout of the previous local maximum at $1875.
But we can hardly expect such prices without real fundamental factors. One of the main fundamental drivers for Gold next year is the interest rate hikes in the U.S. Despite negative real interest rates, the gold market is suffering from weak demand. Some analysts believe gold prices could surpass $1,900 in the second quarter if no rate hike occurs before mid-2022.
Bitcoin is still in a local bearish trend. The asset touched the downtrend line in the middle of last week and continued to decline towards local support at $46,500.
At the same time, indicators are hinting at a reversal. Daily RSI a week ago pointed to a divergence and MACD also shows the signal for a rise. In the near future, the main cryptocurrency should either break the trend line and start growing, or break the level of $46,500. In this case, the drop will be at least to the next trading volume accumulation in the area of $40,000-42,000.
The capitalization of the crypto market slightly decreased to $2.27 trillion. The daily trading turnover is also down to $90 billion.
The Fear and Greed Index strengthened over the week to 34 points. The market has calmed down a bit, but is still in a semi-panic state. Retail traders are more inclined to see the crypto market fall further. The BTC domination index lost about 0.5% last week and stands at 38.7%.
Underground miners in China
CNBC reported that there are still miners in the country and their combined hash rate can reach up to 20% from the total. According to their informant (a Chinese miner) the computing power is scattered across many sites, and more than 100,000 different IP addresses per day are used to operate around the country. It seems that migrating to other countries is a very costly venture after all.
What reasons do you need to buy BTC?
The government of El Salvador purchased another 21BTC in honor of December 21, 2021 at exactly 21:21:21. President Nayib Bukele seems to believe in the magic of numbers. According to him, it is no coincidence that the country has an area of 21,000 km2 and the total number of Bitcoins issued is exactly 21 million coins.
The Block Research released a report saying that there were a record number of mergers and acquisitions of cryptocurrency and fintech companies in 2021, totaling to more than $6.0B. There were 197 transactions, a 131% increase over 2020. Companies are actively adding crypto components to their businesses.
The Japanese yen declined due to record-breaking stimulus measures. The stock market got spooked… but recovering. Oil is trying to break through a key level with the potential to reverse the current trend. Cryptocurrencies are still in a flat. However, as practice shows, this situation cannot last long.