Market Musings - Mid-week update
Some updates on BTCUSD and ETHUSD as well as some interesting charts to keep on your radar.
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Hi readers, now that the highly anticipated FOMC announcement has come and gone, I would like to share my thoughts on the current price action and provide insights on potential market scenarios moving forward.
Price Action Updates
In the last Market Musings post I posted that -
“the lack of robust momentum during the bounce from those lows is concerning, although this could simply be the effect of consolidation. At this juncture, the price action dictates that we remain vigilant and agile, especially if we see prices trading weakly and markedly below this week’s open.”
For BTCUSD, the chart below shows an inside-bar and down reversal on April 24th, which flipped the price back below the weekly open, setting everything to a full timeframe alignment (FTFA) red 🔴.
Similarly, ETHUSD was unable to hold onto the weekly open, and we witnessed a MOMO up reversal short (MUR-S) on April 29th, flipping the alignment back to FTFA 🔴.
So where does that leave us?
The market breadth, as indicated by the number of Binance perpetual contracts trading above their 8-day and 20-day moving averages, is currently extended to the downside, with only 4% and 3% of the perps trading above these respective moving averages.
While this is usually a sign of an oversold condition, this prolonged skewed breadth reflects the prevailing bearish sentiment and downward momentum in the market.
From a purely price action perspective, as long as the price continues to trade FTFA 🔴, the bias should remain on the downside.
For active traders, you might try buying flushes, but until the timeframe alignment changes, strength should be faded.
If you're itching to go long but want to wait for the pullback to run its course, your first indication that buyers are back in control and that it's safe to take on longs is when the price can firmly hold above the weekly and monthly open levels 🟢.
Based on the longer-term 3-month charts, BTCUSD and ETHUSD remain in longer-term uptrends unless we see a price reversal on these charts. This would require BTCUSD to trade below $38,545 and ETHUSD below $2,067.16, which, at this point, appears very unlikely.
So, for now, all dips may remain buyable if you can identify a favorable trade location with an asymmetric upside potential or if you can hold on to a longer-term position.
However as always, it's crucial to exercise caution and employ sound risk management, as market conditions can shift rapidly.
Personally, I'm looking for any kind of washout that could present a buyable opportunity.
BTCUSD is trading in momo-down on the daily chart, so I'm closely monitoring for any signs of late sellers getting trapped, which might mark a local bottom.
The markets don’t often give us what we want so most of the time we have to settle with what we get.
Stay prudent and don’t f*ck up the bag. 💰
Interesting Charts of the Week
Energy + Bitcoin 🤝
Over the next several weeks, it's worth keeping an eye on the intriguing relationship between the energy sector and BTCUSD.
Notably, we are observing high levels of correlation between the two, with correlation coefficients hovering around 0.80, which interestingly are at the highest levels since last April.
There are a few potential narratives that could be driving these elevated correlations.
One possibility is that BTCUSD and oil are trading in tandem as they are both considered geopolitical risk assets, inflationary assets, or indicators of global economic growth.
It will be interesting to monitor how these correlations unfold in the near future and the underlying factors influencing this relationship.
Yen Shitcoin?
Macro traders have been fixated on the USDJPY currency pair this week as the Japanese Yen is now trading at its lowest levels in 30 years against the US Dollar. This significant depreciation of the Yen is drawing heightened attention, particularly given Japan's status as the G10 country that has embraced Keynesian monetary policies to the furthest extent.
Market participants are closely watching the Yen's performance as a potential harbinger of what could lie ahead for other major currencies if they follow a similar path of aggressive monetary easing and expansionary policies.
As the Yen continues to trade at multi-decade lows, traders will closely scrutinize any interventions or policy shifts by the Bank of Japan and the Japanese government to address the currency's depreciation. The USDJPY pair's movements could have far-reaching implications for global forex markets and potentially serve as a leading indicator for other major currencies.
Crazy for COCOA 🍫
After the closely watched JPYUSD pair, the COCOA chart has likely been the second most scrutinized by traders.
At its peak, COCOA prices had surged nearly 300% year-to-date, driven by the prevailing narrative of a supply shortage.
However, despite the purported unchanged fundamentals, many speculate that the recent pullback has been exacerbated by high margin requirements.
Whenever we witness such parabolic price moves followed by a sharp correction, it raises the question of whether we've potentially witnessed a generational high for the cocoa bean.
While a retracement of the entire 2024 move is unlikely to occur in the short to medium term, the poor market structure left behind by the momo-up sequence, suggests that the 4,340.5 level could come back into play, effectively erasing the year's gains.