In brief (TL:DR)
- U.S. stocks turned flat Tuesday with the S&P 500 (-0.15%), tech-centric Nasdaq Composite (-0.07%) and the blue-chip Dow Jones Industrial Average (-0.07%) were more or less unchanged as investors sat on the sidelines awaiting the conclusion of a Fed policy meeting.
- Asian stocks were mixed Wednesday after their biggest slide in two months as investors mulled a slew of earnings reports amid worries over virus variants and hurdles to stimulus.
- U.S. 10-year Treasury yields edged up to 1.04% (yields rise when bond prices fall).
- The dollar was little changed.
- Oil rose with March 2021 contracts for WTI Crude Oil (Nymex) (+0.17%) up at US$52.70 and looks to continue trading rangebound.
- Gold was little changed with February 2021 contracts for Gold (Comex) (-0.22%) at US$1,850.80 from US$1,854.80 as the dollar remained flat.
- Bitcoin (-1.16%) fell to US$32,171 as inflows into exchanges continued to lead outflows and investors worry that a rally to US$40,000 becomes more remote (inflows typically suggest that traders are looking to sell Bitcoin in anticipation of lower prices).
In today’s issue…
- There’s Never Been a Better Time to Borrow Money
- Chinese Investors Are Hot for Hong Kong Tech Stocks
- Could Bitcoin succumb to the technicals?
Learn about the latest trends in 2021, best practices and their journeys into this field!
- Date & Time: Thursday, 28 Jan 2021 – 5:30 PM (GMT+7)
- Location: Online via Zoom (Register here) and Livestream on Novum Alpha fanpage: https://www.facebook.com/novumalpha
1. There’s Never Been a Better Time to Borrow Money
- Firms have raised a record amount in the debt and equity markets in the first three weeks of 2021
- No end in sight in demand for debt as central bank intervention forces excess liquidity to search for yield
2. Chinese Investors Are Hot for Hong Kong Tech Stocks
- Surge in fund flows from China into Hong Kong stocks are raising fears over a bubble
- Fund flows qualitatively different from the 2015 Hong Kong stock rally that also led to the bubble bursting, driven primarily by mutual funds
3. Could Bitcoin succumb to the technicals?
- Technical charts for Bitcoin suggest that the US$31,000 level of support has already been tested in the 50-day moving average, a level if breached, technical analysts suggest, could send Bitcoin lower
- Technical analysis only provides glimpses into part of the picture, with retail investors an unknown and immeasurable force for volatility in the cryptocurrency markets
It has been said that a technical trader is never wrong in their analysis, the market simply hasn’t caught up to their charts.
But as Bitcoin extends its losses from its recent all-time-high, wonks who trade assets purely on technical analysis are watching price levels closely to see if key levels of support are at risk of being breached.
Technical analysis involves traders using historical charts to predict future movements based on precedent – the only problem is that when it comes to cryptocurrencies, particularly for Bitcoin, there’s not a whole lot of reliable historical data with which to base the future on.
And considering the numerous black swan events that have marked the past few years, using technical analysis to predict where Bitcoin is headed to next is a bit like driving by looking at the rearview mirror.
Nonetheless, there are some analysts who note that Bitcoin has already tested its 50-day moving average, and who suggest that a sustained dip below that level could see further declines.
Often these technical indicators can act as self-fulfilling prophecies.
If sufficient number of traders believe that the 50-day moving average won’t hold, a narrative could potentially be constructed to suggest that Bitcoin’s rally over the past four months was nothing more than a massive speculative blow-out.
In the immediate term however, signs are pointing bearish, but not for reasons that the charts might suggest.
Given greater variety for accessing Bitcoin, institutional investors are starting to cool on Grayscale Bitcoin Investment Trust (GBTC), which has seen the premium that it charges for shares in the trust decline more rapidly than the underlying price of Bitcoin.
Investor flows into the US$20 billion GBTC have also understandably slowed and a sharp selloff last week is raising questions about Bitcoin’s ability to regain US$40,000 again.
Longer term though, the prospect of greater regulation from members of the Biden administration who are pushing to regulate cryptocurrencies may facilitate the broader entry of institutional players into the market which many investors are betting on.
Goldman Sachs (-0.45%) has already beefed up its digital asset trading team, and more than a handful of big-name banks are looking to start institutional trading of cryptocurrencies.
It’s still early days in the cryptocurrency space and there are plenty of macro factors that will affect Bitcoin’s prospects and contribute greatly to its volatility in the coming weeks and months.
If the unprecedented rally in the shares of GameStop (+92.71%) are anything to go by, never underestimate the power of retail investors to drive speculation in frothy markets – and that’s something the charts may not be able to show.
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The information and thoughts laid out in this analysis are strictly for information purposes only and should not be regarded as an offer to sell or a solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be in violation of any local laws.
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