(Kitco News) – Financial markets struggled to generate momentum on Monday as investors have started to reevaluate their interest rate cut expectations in the wake of last week’s blow-out jobs numbers.
The weakness is “challenging the market's attempt to extend the previous Friday's rally,” noted analysts at Secure Digital Markets. “The averages are coming off their fourth consecutive winning week, supported by a robust jobs report that bolstered hopes for a gradual economic deceleration without triggering a recession.”
“The 10-year Treasury yield crossed back above 4% for the first time since early August, propelled by strong labor market data, even as the Federal Reserve has reduced interest rates,” they added. “On the commodities front, U.S. crude oil prices increased roughly 2% amidst expectations of an Israeli military action against Iran, which could potentially disrupt the critical Strait of Hormuz, through which 20% of global crude exports pass. This geopolitical tension, alongside China's stimulus efforts, is reigniting concerns about inflation, possibly prompting a shift from bonds to other assets.”
Monday saw oil continue to catch a bid, with WTI crude increasing 3.71% to trade at $77.14. Gold, meanwhile, is down 0.54% at the time of writing and trades at $2,639.30 per ounce, with the declines coming as investors look to book profits following its record run to new highs.
At the closing bell, the S&P, Dow, and Nasdaq all finished lower, down 0.96%, 0.94%, and 1.18%, respectively.
Data provided by TradingView shows that Bitcoin (BTC) rallied to a high of $64,480 near midday, but has since pulled back to support at $63,000. The appearance of an extended wick higher on the daily chart is a warning for some that Bitcoin could trend lower in the near term.
BTC/USD Chart by TradingView
“Bitcoin recently approached $64,000 in anticipation of significant economic data releases from the U.S., only to retreat to $62,500 earlier today,” Secure Digital Markets analysts said. “The resurgence in Chinese equity markets, buoyed by recent economic stimulus measures, appears to be temporarily diverting capital away from the cryptocurrency sector. Nonetheless, this shift might not persist.”
At the time of writing, Bitcoin trades at $63,047, an increase of 0.65% on the 24-hour chart.
Looking for a strong finish to Uptober
Bitcoin’s dip to support at $60,000 last week following the uptick in the Middle East conflict between Iran and Israel served as a gut check for bullish cryptocurrency investors, but according to Shubh Varma, CEO of Hyblock Capital, ‘Uptober’ still shows signs of being positive for the crypto market.
“The first week of October, dubbed ‘Uptober’ by many in the crypto community, kicked off with a notable dip, defying the expectations of an early rally,” Varma wrote. “This quick decline has quieted the once-loud optimism across crypto Twitter. However, despite the slow start, a deeper dive into the data suggests the potential for a reversal in the coming days, with significant liquidity pools emerging on both the short and long sides.”
“When examining the liquidity heatmap over the last three months, it’s clear where the key levels of liquidity lie,” he noted. “On the short side, large liquidity pools have built up between $66.7k and $70k. Conversely, long liquidity is starting to accumulate around the $60k and $57-57.3k levels.”
“The distribution of liquidity implies that these areas will likely become the focal points for the next major moves,” Varma said. “The market is in a ‘wait and see’ mode as leverage positions build. Currently, we’re seeing a tilt towards the long side, though it’s still early.”
He said that in the event that “the leverage delta exceed 10, we could witness a strong bullish bias take over. Yet, it’s important to remember we’re coming off some bearish signals – both from the leverage delta and the liquidity build in combined books, where passive bids and asks remain heavily loaded.”
“On a macro level, the backdrop continues to favor risk assets, including crypto,” Varma said. “The latest jobs report was a blowout, with non-farm payrolls rising by 223,000, far exceeding expectations of 125,000. The unemployment rate dipped to 4.05%, and full-time job growth outpaced part-time gains, indicating a healthier labor market.”
He said these developments have “pushed the market narrative away from recession fears and towards a global easing cycle, as central banks in Europe, Japan, and the UK have paused or are contemplating easing rates. This easing environment is a positive catalyst for crypto, as liquidity injections typically benefit risk assets.”
“However, there are headwinds,” he warned. “The geopolitical landscape remains tense, particularly with ongoing instability in the Middle East. Coupled with uncertainty surrounding the upcoming US elections, the market is grappling with various risks that aren't yet fully priced in. It’s notable that neither US presidential candidate is heavily favored in the market at this point, which adds another layer of uncertainty.”
“Participants seem to be reacting cautiously to this uncertainty, as evidenced by the global open interest (OI) metrics,” Varma said. “Over the past few days, we’ve seen a net exit from positions, with the global OI, which tracks over 200 tickers, showing a notable decline.”
“Simultaneously, the Fear & Greed Index has slid back to neutral, indicating a lack of strong conviction in either direction,” he added. “This market indecision reflects the broader environment of uncertainty, with participants waiting for clearer signals.”
One indicator that is signaling a build-up of bullish energy is the True Retail Long Percentage, Varma noted. “A useful contrarian indicator, [it] shows that when the percentage of retail long positions is at a low, it often signals a price reversal to the downside. Conversely, when the percentage is high, it tends to signal a bullish price reversal,” he said. “Currently, we’re seeing retail longs climb, which could suggest a potential bullish setup in the near term, but it’s far from certain given the other factors at play.”
“On the technical front, anchored CVD (Cumulative Volume Delta) and anchored CLSD (Cumulative Long Short Delta) provide valuable insights into recent market behavior,” he added. “At the most recent local low, around $60k, we observed a significant negative CVD paired with a major short imbalance on the CLSD—over 2x the imbalance seen at the previous local bottom.”
“Notably, the previous low was marked when CLSD hit -200M, a threshold we hadn’t exceeded until recently,” he observed. “This recent drop below -200M in CLSD at $60k signals another potential bottom, increasing the likelihood of a short squeeze and further upward momentum.”
“This indicates a higher likelihood of a short squeeze, which could propel the price upward, potentially sweeping the liquidity between $66k and $70k,” Varma said. “A short squeeze, coupled with the market’s renewed risk-on sentiment, could result in a strong reversal, aligning with the ‘Uptober’ narrative many were pushing earlier.”
Another bullish sign is the recent performance of speculative assets, he noted. “Assets like SPX6900 and GIGA have seen incredible gains recently, and this speculative fervor could spill over into the broader crypto market, driving prices higher as liquidity chases riskier, high-beta assets. If there is a correction, it is likely to be shallow, targeting the lower liquidation pools before another leg up. However, if the signals from order books and leverage positions turn bullish (demand > supply), the market may bypass a deeper correction entirely and quickly head straight for the upper liquidity ranges.”
“In summary, while the first week of October may have started with a dip, the broader environment—both macroeconomic and technical—suggests that the remainder of the month could see a strong rally,” he said. “The liquidity map shows clear targets for both short squeezes and long liquidations, and with the macro backdrop remaining supportive, a potential breakout could occur once leverage positions become clearer.”
“While the market is currently neutral, the pieces are falling into place for a bullish run, as long as geopolitical risks don’t derail sentiment,” Varma concluded. “The stage may still be set for an ‘Uptober’ finish, despite the early headwinds.”
Altcoins extend uptrend
Altcoins traded mixed on Monday with a majority of tokens in the top 200 recording gains.
Daily cryptocurrency market performance. Source: Coin360
First Neiro on Ethereum (NEIRO) was the biggest gainer, increasing 40%, followed by gains of 25% and 19.2% for cat in a dogs world (MEW) and FTX Token (FTT), respectively. Helium was the biggest loser, falling 5.8%, while MX Token lost 5.2%, and Popcat (POPCAT) declined by 3.6%.
The overall cryptocurrency market cap now stands at $2.2 trillion, and Bitcoin’s dominance rate is 56.9%.
