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Market Intelligence

Battlegrounds Are Clear For Bitcoin

Wednesday, August 29, 2018, 11:09 AM, EST

  • NASDAQ Composite +0.34% Dow +0.00% S&P 500 +0.15% Russell 2000 -0.15%
  • NASDAQ Advancers: 1071 Decliners: 989
  • Today’s Volume (First Hour) -8.3%

The Nasdaq Composite, S&P 500 and Russell 2000 have all closed at new highs in each of the past three days. In fact, this is the best August for Nasdaq Composite since 2000 while the S&P 500 flirts with its first 2,900 close. Today, markets opened about unchanged which does not rule out another record closing day. The Dow is still looking to regain its January closing high of 26,616 but is still lagging by about 600 points. The index is trailing others in part due to the influence of CAT and BA. For the month, the Dow is up 2.6%, the S&P is up 2.9%, and the Nasdaq is up 4.7%. Both the S&P and the Nasdaq are on track for their fifth straight monthly gain.

Today, a second read on GDP did little to move markets. Given the typical late August vacations and lack of earnings and economic catalysts, there is not much to move stock prices, save for headlines on trade. Trading volume is slow (see below) and is expected to remain so. Today, IT (+0.52%) is leading with seven sectors in the green. Energy (+0.26%), Consumer Discretionary (0.14%) and Health Care (+0.11%) are in positive territory wile REITS (-0.08%), Industrials (-0.08%) and Financials (-0.33%) are lagging. The dollar is ticking up by about 0.09%, with gold up over $4 to $1205 and gold is flat, and WTI crude up $0.63 to over $69 this morning.

  • The second read for 2Q GDP shows that the economy grew by 4.2%, higher than the initial report of 4.1% growth and a 4.0% estimate. Personal Consumption rose 3.8%, one of the best readings in many years but lower than the survey estimate of 3.9%. With corporate earnings growing at 20% in the first and second quarters and the Fed expected to continue along its normalization path, nothing in these releases moved the needle on Wall Street. The question still remains how long can the economy expand at current rates and will this translate in to 2019 earnings growth that will be enough to support valuations. Right now the market seems happy with the economic situation right now.
  • July Pending Home Sales fell 0.7%, well below the 0.3% estimate. This is the seventh straight month of year over year declines. The fall from the prior reading of 0.9% growth was consistent with declining mortgage applications. Buying sentiment has also pointed to a slowdown going into the second half.
  • It’s not surprising that volumes are slowing in August as consolidated trading is expected to be lighter at this time of year. The VIX product blow-ups (Feb.) and Italy’s political drama (May) are behind us. And while some Augusts (2015 for example) were busy due to China devaluation concerns, this year is tracking like a more normal year. Below is a chart of trading volume for all U.S. exchange traded stocks this month. Only two days saw volumes above the YTD average of 6.66 billion shares.

Technical Take: Battlegrounds Are Clear For Bitcoin

As equities melt higher in late summer, volatility remains at depressed levels. Speculators looking for sharp price swings can find plenty of it in cryptocurrencies. MTD bitcoin is down a sharp (7.8%), yet this does not do justice to the even greater price swings seen on a daily and weekly basis. In the first two weeks of August bitcoin saw declines of (10.2%) and (16.2%) followed then by weekly gains of 4.7%, 2%, and 7.3%. The average monthly move over the first seven months coming into August is roughly 22%, and that could actually start to pick up in the not too distant future.

Since peaking in December, bitcoin experienced a sharp 70% crash over just two months’ time. However that early February low has proven to be a reliable support line tried and tested over numerous sessions throughout June and August. Of concern to bulls is the technical adage that the more a support level is tested, the more likely it is to break.

Also, all rallies following the initial February low have been making a series of lower highs. However in its short life bitcoin has seen drawdowns of 80% or more on two occasions to only then roar back making significantly higher highs. And momentum appears to be improving as the weekly RSI, which made a series of lower lows throughout 1H’18, just recently made its first higher low.

As always the key determinant is price.

The battle lines are clear with major support at 5,922 and key resistance at the recent July high, 8,480. A breakdown below support has the potential to be catastrophic given the massive gains over the recent five years which includes 5,428% in 2013 and 1,403% in 2017. Conversely a move above the 8,480 resistance would mark a meaningful change in character by breaking the pattern of lower highs seen throughout 2018.

While many more hurdles of resistance would still remain above, an upside breakout would be a positive signal to momentum traders while at the same time establishing a clearly defined risk level. Another positive signal to lookout for would be a breakout in momentum whereby the weekly RSI moves above the 56 level. Regardless of which direction the breakout occurs, the momentum and volatility is likely to be strong.

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Nasdaq's Market Intelligence Desk (MID) Team includes:

Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).

Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.