Clearing for Takeoff

Bull Markets, Bull Markets Everywhere

Preface

Last week the FOMC decided to hold off raising interest rates after 10 straight months of hikes. But it wasn’t all sunshine and roses for the markets, as Powell came out sounding as hawkish as we’ve seen him in a while.

I believe he was trying to cool the stock market, which has been in absolute melt-up mode. It didn’t work, however, as stocks continued to rally and only experienced a slight Friday pullback.

ALL major US indexes have now confirmed a bull market and have moved at least 20% off their October 2022 lows. Even the Dow Jones Industrial Average made multi-month highs on Friday.

That’s good news on the legacy side, which generally translates to a pick-up in risk assets like crypto. So far we haven’t really seen that happen, and summers can be a challenging time for markets. For now I consider Bitcoin to be in a bear market until it can climb back above 30k. However, we know how quickly this asset can move, so I’m ready to pivot and shift bias when the time comes.

For now it is best to focus on solid projects in the space with the best teams putting in sweat equity. You want to invest in the people who are always ready to build and innovate regardless if BTC is $10k or $100k. That’s my two sats.

Economic Calendar

Highlights

  • Housing Data – Tuesday
  • Powell Testimony – Wed-Thurs
  • Several Fed speakers
  • S&P Global Composite PMI
https://www.fxstreet.com/economic-calendar

Data Preview & Commentary

As we can see, it’s a light week on the economic calendar. The main market-moving event is likely to be Jerome Powell’s semi-annual Congressional testimony. Powell will present his monetary policy report before the House Financial Service Committee on Wednesday and the Senate Banking Committee on Thursday.

Expect Powell to reiterate talking points from last week’s FOMC press conference, in which he sounded quite hawkish and hinted at further rate hikes as data deems appropriate.

The latest dot plot indicates two more 25 basis point rate hikes before the end of 2023, but markets still believe otherwise with traders only pricing in one more.

Given that markets remain on edge in regard to rate hike expectations, his testimony has the potential to stir up some volatility – especially if fresh clues are dropped on the Fed’s next move.

Market Effects

Powell’s comments this week should have some impact on the dollar and stocks. It’s a coin flip whether or not they’ll affect crypto as the correlation is just not there right now. Let’s take a look at some chart levels.

US Dollar Index

If Powell offers new hawkish talking points or clues on rate hike timing, the Dollar Index may push back up toward 103 resistance. It may, however, express continued weakness if Powell offers considerable doubt about further hikes on the basis of a continued uptick in unemployment or drop in consumer trends this month. Such comments could pull the Dollar Index down toward 101.50 or 100.75 levels.

S&P500 Index

The benchmark index is in a strong upward channel, and could extend its move toward 4500 this week based on or even ahead of Powell’s testimony. Bad news is still good news for market participants, as trading decisions are largely based on interest rate expectations.

If Powell hints about significant US economic headwinds, the market will be more inclined to conclude the Fed is done raising. That would add further fuel to this squeeze. On the other hand, talk of higher rates for longer may cap upside in the short term.

We’ll need to set a higher low sooner than later, but bulls are comfy as long as this upward channel holds. We could pull all the way down to 4230 and fill the 6/2/23 gap right now and still be holding support.

Bitcoin

I’ve been waiting for OBV to show some strength, and we’ve finally got that as it bounced a final time off support and is currently attempting to break resistance. This is starting to look more like a confirmed low based on that, but I’m weary of 27-28k resistance. There will be a massive struggle for control in that area and again, I’m not turning full bull until we close firmly above 30k.

This does look good at the moment and it seems we want to continue higher in the short term. There are still some hold-outs waiting for that 23-24k area, and truthfully it is still in play. I’ll use OBV as a guide and get cautious once it turns around again.

And that’s all for today! Happy Juneteenth to our American friends 🇺🇸🇺🇸

Jay Charles

Editor in Chief, The Trading Tank.

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