This is the market update and we have the CPI this month which is going to show us what inflation was for June. This is such an important figure for bitcoin and the rest of the market, so we’re going to have a look at that when it actually is and how it’s going to affect things depending on what the number is compared to what the consensus is. Obviously, this is going to affect the price of everything in the market, including bitcoin and crypto.
Right now, as we’re waiting for this, we are going to be in a holding pattern so nothing’s going to happen this week too much but here it is on Wednesday at 8:30 a.m. that’s U.S. eastern time. We’re going to get the CPI figure now. CPI is expected to be 8.8%, which is obviously insane, but you know, people aren’t expecting this to come down. As of last month, June, oil remained very high, so what we’re expecting is 8.8%.
If the figure comes in way below that, obviously, that’s pretty good news overall for the economy and probably for risk assets as well. If inflation becomes crazy outside of, you know, 8.9% or 9.1% or something like that, then I would suspect another sell-off in the market because that’s telling the Fed that inflation isn’t under control. They have to be more hawkish, but a lot of this is priced in already.
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What I also want to come to is the bitcoin price. We’re actually seeing a technical pattern play out, which I just want to highlight and which we’ll go through. This is known as an Adam and Eve pattern, and it’s actually playing out really perfectly right now. You obviously have a resistance line up here and this is actually meeting the 200 period moving average, which is um, quite interesting as well. So what usually happens with an Adam and Eve pattern is you get this big sell-off, which we’ve had, so this was kind of the 3AC sell-off and then you have a recovery into a resistance, which we got.
Then you have what’s called a kind of sell-off and recovery again, which is like U-shape back into the resistance. We actually broke this resistance, and then came off again and kind of tested this. It’s not a perfect pattern, but this is how the Adam and Eve pattern actually plays out where you have a big sell-off.
You obviously have a pattern right here, which is the support level going into the resistance, coming back to support, up to resistance, kind of trying to break out retesting, and this is typically known as a bullish pattern, which is obviously good if you’re a bitcoin holder.
What you’re seeing here is it’s not perfect, so the sell-off didn’t come back to the support level, but this isn’t basically a real world Adam and Eve pattern. If this pattern is looking for a bullish move to the upside in terms of day trading, if you are a short-term trader playing this out, you’re looking at this kind of cup pattern for the break on the upside, which would take us to about, let’s say, $21,800, maybe $22,000, something like that, which would be a 10% move.
This is obviously not going to play out until the figures come out on Wednesday. So you know, it really just depends on the figures. So if CPI is a little bit lower than expected, then I would suggest that the market is going to take that pretty well because they’re going to think that the Fed has kind of started this reduction in inflation. But if it comes in hot or kind of level 8.8%, maybe hotter than that, I would expect the markets to sell off from that because, again, they’re just thinking that the Fed hasn’t even started to affect inflation yet.
So that just means that the market in general and all of the trading algorithms that trade these figures aren’t trading them correctly. It’s all algorithms that are set in place that if the figure comes in at 8 points, you know, 9, and then some of the breakdowns of each individual sector with the inflation there That’s going to trigger, you know, bots to do most things. They’re going to be set if inflation is very high, basically to sell off, expecting, you know, rates to be higher for longer and everything like that. So this pattern is playing out. That is the potential to the upside, but I think if we get bad figures then you’re going to be looking at another breakdown and maybe testing some sort of support level or even down to this support level which you broke to kind of maybe in the 1900s.
When is the flip?
I also want to highlight these two posts from R. Powell, which kind of square with my way of thinking as well, which is how much tightening we’ve seen in the market already versus what’s actually going to happen. So everyone knows that a recession is happening right now; we’re just waiting for the numbers to come out to see how bad the slowdown is or if it’s not as bad as risk assets coming off their 50s and 70s, as we’ve seen in bitcoin.
What you can see right here is how much you know which sector of the market has priced in the most declines in the market, and that has been the Nasdaq. Now this is typical because the Nasdaq is higher beta and so during swings up and down, it reacts more often than, you know, other assets that are lower beta, and they’re not going to move as much.
The Nasdaq is already priced in a decently sized recession, as you can see here. You can see the pricing in of the Nasdaq is almost as much as the pandemic tightening right, which everyone thought was going to end, so we’re basically in that again right, but we don’t have that this time and so is it overdone? Well, that’s obviously up for an opinion and actually what the real data says.
You can see that the Nasdaq has tightened more than any other sector, and bitcoin and crypto definitely trade along with that, so Raoul’s thoughts here is that, essentially, these high-risk assets or assets that are out on the risk curve a little bit, he thinks they might outperform. He says I started to accumulate into this weakness because it’s most reflective of the future economic reality and thus should outperform as yields come lower. So this is based on the fact that we’re thinking that interest rates have kind of peaked here, and they can go sideways, but they’re not going to go up much more because what we’re seeing in the real data is that the economy has tightened. We’re just waiting for that to come out in the economic data.
For the most part, there might be some discrepancies here, but for the most part, that tightening may have occurred. The one sector that is going to come out first and hardest in that respect would be the Nasdaq, and that is just technically what happens to higher beta names, which is what the Nasdaq and bitcoin are.
So I’m still kind of you have to be more bearish or at least not as bullish because the Nasdaq can still come down. The S&P can come down because of all these earnings revisions coming down. But when that flips, when the Fed eventually says yes, the economic data is showing a huge slowdown, inflation is low, we don’t have to tighten as much and we can pause or stop or just see how we go, then you’re going to see a big bid under the market. When that comes, if it’s earlier or whether we get another move down as S&P earnings revisions come in and we test the lows again, that could very easily happen.
But after that, after a session is here and hit, the Fed is going to flip and the first sector out of this same every single time would be those high beta names, bitcoin, Nasdaq, and the names that have just come off so much already.
It depends on your time horizon. If you’re looking 12-18 months out or two years out, then you’re looking at risk asset prices like bitcoin and Nasdaq stocks and saying they have already priced in the majority of this recession. Also, as a recession isn’t the de facto way of the market, the de facto way of the market usually is to just rise along with economic growth and the debasement of currency, so if you’ve got that time horizon, then obviously this recession is mostly priced in for the most part if you have a short-term time horizon. If you’re still looking at downward pressure here because of earnings revisions, the stock market will most probably come off more as economic data feeds through and they start revising their earnings and earnings forecast down a bit. Depending on your time horizon, that’s kind of how I would copy trade crypto.
[This article is a transcription of a video made by MoneyZG]
Original video: https://youtu.be/qmCjHeP0YzY]