(Kitco News) – Asset prices trended lower on Wednesday as stock traders sat on their hands awaiting Nvidia’s after-hours earnings report, while most investors saw little motivation to increase their exposure to risk with no positive stimuli on the horizon before the next FOMC meeting.
While expectations for a rate cut in September remain at 100%, the Fed's interest rate decision is still another 20 days away, and other economic developments continue to have a negative effect on global markets.
“In case anyone had any lingering doubts regarding [Fed Chair Jerome] Powell’s flip to full-on dovish policy, everything became crystal clear at the Jackson Hole symposium last week,” said market analyst Bloodgood. “During his speech at this crucial event, Powell was confident in a soft landing as inflation is approaching the 2% target, while the weakening of the labor market means that rates need to go down.”
“This is, of course, excellent news for risk-on assets (no wonder that the S&P 500 had its highest weekly close ever), but the imminent rate cut has set off a fresh wave of worry about the yen carry trade that I covered in detail early this month,” he added. “Back then, only a fraction of the capital caught up in this trade was forced to bail, and there’s no telling how many trillions of dollars are still in there.”
“Given that USD/JPY is currently less than 2% above the low that sent global markets into panic mode on August 5, some are worried that a further reduction of the interest rate differential will lead to more chaos,” Bloodgood said. “The fear is very understandable (and USD/JPY is definitely something to keep an eye on), but on the other hand the U.S. will do absolutely everything that it can to prevent turmoil right before the elections.”
Regarding the outlook for the S&P, Bloodgood said, “It’s hard to make any calls here as any asset that trades around the ATH is unpredictable. Either it gets rejected and we see levels below $5,260, or we see more strength and push deeper into new ATH territory.”
“Gold has slowed down and eyes a reversal,” he warned. “There’s not much we can do right now, as the only logical entry here is around the breakout area at $2,400.”
This sentiment was echoed by TD Securities’ Senior Commodity Strategist Daniel Ghali, who said, “Downside risks are now more potent,” in a note published Monday. “The ship is crowded. In fact, it has scarcely been as crowded as it is today. Do you have a slot secured on the lifeboat?” he added.
“Not much has changed with DXY either,” Bloodgood said. “As long as it remains under the 101 level, we are good. However, if we start seeing a bounce and follow-up, we should get more cautious with risk-on assets.”
At the close of markets on Wednesday, the S&P, Dow and Nasdaq all finished in the red, down 0.60%, 0.39%, and 1.12%, respectively.
Data provided by TradingView shows that Bitcoin (BTC) bulls spent the day trying to climb their way back from an overnight sell-off that saw King Crypto hit a low of $58,040 late on Tuesday.
BTC/USD Chart by TradingView
But bears weren’t giving up their ground without a fight and briefly dropped BTC to a daily low of $57,852 on Wednesday afternoon before bulls pushed it back above support at $58,500. At the time of writing, Bitcoin trades at $59,247 for a decrease of 4.32% on the 24-hour chart.
Ongoing consolidation
While the overnight sell-off caught many by surprise, Bloodgood noted that it was more of the same volatility that has been seen in recent weeks, as BTC bounced “out of the accumulation zone only to get rejected at the daily resistance.”
“Last week, we discussed that BTC was accumulating slightly above its breakdown level at around $60k, which was followed by a bounce a couple of days later,” he said. “A strong bounce led Bitcoin to the daily resistance at $64.5k, which seemed too strong to break.”
“At the time of writing, Bitcoin is trading back in the accumulation zone, which looks shaky, and I am not completely sure it will hold,” Bloodgood noted. “The big question now is whether this was a lower high and if we are on a path to make a new low, potentially dropping below $49k.”
“Historically, September is not a bullish month for Bitcoin, and with the elections coming, we should have an interesting fall,” he said. “To be honest, I don’t expect this bearish structure to change this year, but I am positive that we can win some nice trades with this price action and get ready for the 2025 bull run. Just this week, we got two perfect bounces off our levels: one from the accumulation zone and a rejection at the daily resistance. Stick to your plans.”
TradingView analyst TradingShot said he expects things to start to improve once this bout of weakness passes.
“Bitcoin is taking a hit on a weekly basis as, despite last week's green candle that extended the rebound on the 1W MA50 (blue trend-line) and hyped hopes for a new 70k test, the last two days are resetting the momentum,” TradingShot said in a note on Wednesday.
“Still, there is no cause for alarm as BTC has been practically consolidating since the March All Time High (ATH),” he added. “And in fact, the market is no stranger to such consolidations as just as recently as last year, it was also ranged from March until October 2023, before starting the massive rally that led to the ATH.”
“Even in the previous Cycle, we can somewhat see a rough consolidation pattern, which, if it weren't for the COVID crash 'anomaly' of February 2020, the market would again be ranged from March to October 2020,” TradingShot said. “As a side-note, check also how similar the 1W RSI sequences of those fractals are, trading around the same price levels as well.”
He coined the term “The March - October effect” due to its appearance in multiple cycles and said, “If it plays out again the exact same way it has historically, then as soon as September ends, we can be expecting one of Bitcoin's brutal Bull Cycle rallies (green Channels).”
“Practically, we are only a month away, and as you can see in the previous Bull Cycle, the main two rallies have been fairly symmetric,” he concluded. “If the one that might start in October is proportionally as strong as the October 2023 - February 2024 one, we might be looking for at least a $150,000 target” for Bitcoin.
Altcoins get bludgeoned
It was a rough day for altcoin traders as only four non-stablecoin tokens in the top 200 recorded gains.
Daily cryptocurrency market performance. Source: Coin360
Dogs (DOGS) was the only standout performer, gaining 18%, while Immutable (IMX) increased by 2.2%, and Aave (AAVE) gained 1.3%. DePIN project io.net was the biggest loser, falling 15.9%, followed by losses of 15.4% and 14% for ORDI (ORDI) and SATS (1000SATS), respectively.
The overall cryptocurrency market cap now stands at $2.08 trillion, and Bitcoin’s dominance rate is 56%.
