Grinding support like USD, FOMC Drive the Waves

Nasdaq, Bitcoin Talking Points:

  • Both Nasdaq and Bitcoin are testing key support points after aggressive selling.
  • It was a brutal 2022 for Bitcoin but much of that pain was relegated to the first half of the year. Things haven’t been much nicer at Nasdaq and both are sitting on key supports ahead of next week’s FOMC.
  • When markets go into risk-off mode, we will often see correlations align, but that doesn’t mean the correlation will last and therefore makes it difficult to chart a strategy.
  • The big driver of both bearish trends has been higher rates and this is something that can remain until we reach a capitulation point at the Fed.
  • The analysis contained in the article is based price action And graphic formations. To learn more about price action or chart patterns, check out ours DailyFX Education section.

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Bitcoin is back in a very key support zone. I’ve been monitoring it for the past few months as it was the first area that finally stopped the bleeding from the March-June sell-off. This ranges from 2017’s swing high of $ 19,666 up to 78.6% Fibonacci retracement of the big move 2020-2021.

Bitcoin weekly price chart

weekly chart btcusd

Chart prepared by James Stanley; Bitcoin on Tradingview

When this area came into play in March, buyers slowly returned to the market thanks to the construction of a bullish channel. But given the pace of the previous sale that bullish channel was a bear flag formation, and that began to falter in late August, about a week before President Powell’s Jackson Hole speech. Interestingly, it is also around the time sellers have begun to respond to the Nasdaq after a two-month rally off June lows.

Bitcoin returned to the support zone in early September, but soon found support at the late June low, which led to a rebound that led to this week’s trading, until the IPC release on Tuesday. And, like the Nasdaq, both markets have been hit by that data. But – interestingly Bitcoin is holding to a higher low at this point – above last week’s swing – just like the Nasdaq.

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Bitcoin daily chart

daily chart btcusd

Chart prepared by James Stanley; Bitcoin on Tradingview

Bitcoin in the short term

The $ 19,666 level was back in play yesterday, albeit very quickly. Buyers quickly returned and prices returned above the psychological level of $ 20,000. Since then, however, there has been a trend towards lows that creates a short-term descending triangle. This is a bearish pattern, and this keeps the door open for another short-term support test.

(note): As of writing this report, the descending triangle A break has occurred and now the look is for another test of support around the $ 19.666 level. If bears can push below this, with a lower low, then we will have a new low and a lower low which equals a bearish short-term price action trend. The next support would be the late June low which helped lead to a rebound last week.

Bitcoin hourly chart

bitcoin hourly chart

Chart prepared by James Stanley; Bitcoin on Tradingview

Nasdaq

I looked into the Nasdaq on Monday so this will be relatively short compared to Bitcoin. And, after all, there is a certain similarity here, so there is no point in repeating hashing.

Similar to Bitcoin, the Nasdaq reached its high in November last year. November is crucial, because this is also the time when FOMC President Jerome Powell addressed the idea of ​​”withdrawing” the transitional word. Until then, the Fed had shrugged off continuously higher inflation of 5 or 6%, saying instead that the price hikes were due to supply chain problems. Well, those supply chain problems never really subsided and inflation hit 8.3% on Tuesday.

There is a real concern about this. Previous examples of high inflation have shown that it is a difficult problem to tame. Once the trend has started, there are not many ways to slow it down other than to raise interest rates to extract capital from the system. And the very nature of that means that leverage is under pressure, because higher rates mean higher borrowing costs and also a higher opportunity cost for that capital.

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After all, the main reason for keeping rates low is to incentivize investment in order to drive economic growth. And that’s exactly what has happened for much of Bitcoin’s life and, for most of the past 13 years, for the Nasdaq. So, as this report goes the other way with the Fed’s aim to tighten, both markets are seeing bearish scenarios.

At the Nasdaq, the most important level at the moment is the 12k level. The price has not fallen below that price since it rose above July and this remains a key point of potential support for bearish approaches. Resistance was in play earlier this week, just prior to that CPI report and hovering around the 13k level.

From the four-hour chart below, we can see a mass of candlestick wicks just above the 12,074 level and this is clear enough evidence that buyers are arriving to support the lows.

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Nasdaq four-hour price chart

nasdaq four-hour chart

Chart prepared by James Stanley; Nasdaq 100 on Tradingview

Larger image of the Nasdaq

This Tuesday was a stark sell-off and this is something that is still reflected in the weekly chart. This also places a lot of emphasis on that support around 12k as this week’s bar may still end as a bearish float, which would keep the door open for bearish continuation scenarios of a bigger picture ahead of the FOMC next week.

Even without the bearish orbit completing, sellers will keep the look of control until they can push a lasting break above the August high.

Nasdaq Weekly Chart

Nasdaq Weekly Chart

Chart prepared by James Stanley; Nasdaq 100 on Tradingview

Bitcoin and Nasdaq: the relationship

In my view, these are completely different markets and assets that have shared a relationship between being pushed higher by low rates and exuberant risk-taking.

And now this is coming up as the Fed has clearly aimed at reducing inflation. And this is not something they can afford to lose as previous examples have shown that the problem is only getting worse and worse it gets worse, the higher the rates have to be to finally get rid of the problem.

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So while there is likely to be a correlation between the two macro risk assets as the Fed is raising rates, I expect the relationship to divorce at some point, similar to what we saw in 2018 when the Fed was committed to raising rates four times. Capital continued to exit Bitcoin at a faster rate that year, to the point where a correlation coefficient of .89 in January dropped to -.8 in August.

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Bitcoin Weekly Chart – Correlation Coefficient with Nasdaq Futures

Bitcoin BTC weekly chart

Chart prepared by James Stanley

Bitcoin and Nasdaq: long-term

I’m not a fan of being on the bearish side of the markets. But I also recognize the need to at least try to be objective. And I’ve been bearish on the stocks for some time now and that remains the case today.

Likewise, I am bearish on Bitcoin prices in the short term. But, one important caveat: I am also long-term bullish on Bitcoin, and if anything, I see this impending bearish scenario as a point of possible long-term opportunity. And perhaps the same can be said of the Nasdaq, but that photo seems a little darker to me. In Bitcoin, the finite nature of the asset is what makes it attractive in my eyes, and given that the U.S. government hasn’t taken a more decisive hand on the matter it indicates, to me, that it may remain a long-term opportunity in the long run. once a bottom is in place.

Where’s that fund though, that’s the big question? And really, I don’t know … I expect to see heavy revaluations in the markets and the only expectation I have of the lows is that they will show up when very few want to look at anything on the long side. And given the continued viewing in Bitcoin (and Nasdaq), we’re not there yet.

— Written by James Stanley, Senior Strategist, DailyFX.com and Head of DailyFX Education

Contact and follow James on Twitter: @JStanleyFX

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