The Capital
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The Capital

A Cautious Analysis of BTC against the Whole Economy, US in the Spotlight

The bleed is far from over, but Bitcoin may provide a roadmap into equities price action

BTC broke the neckline of a head and shoulders pattern with some acceleration down, meaning the pattern was confirmed. A larger head and shoulders have developed over a couple of days best seen in the 4-hour time frame, but the right shoulder isn’t perfect.

Usually, the volume of the left “shoulder” in a confirmed head and shoulders pattern is higher than in the “head.” While that volume divergence was confirmed in the 4-hour pattern, there hasn’t been an increase of volume in the right shoulder compared to the confirmed pattern on the 1-hour chart.

Our community has been watching these horizontal levels as per the chart. Each level is about $100 apart, starting from 6750 to 6850 and 6950. Notice how each of these levels acted as support-resistance levels.

Now that BTC has broken below all those levels, it’s safer to say there’s enough strength for more downside. But a lot of this price action depends on what equities are going to do.

The Economy

The S&P 500 is near critical resistance just above the 50% Fib and below the 61.8% Fib. This week’s close is critical because if the market doesn’t get another leg down here, it’ll mean that we’ve successfully propped up the economy on unlimited money printing, loans, bailouts, and worse. That will be devastating for the economy in the long term.

If we look at the pre-market data from this morning, equities markets look grim. Earnings from the banking sector could pull the markets down. JP Morgan Chase has stated that their quarter over quarter profits are down almost 69–70%.

The fact is, we’ve had time to form new habits, people by and large aren’t going to go back to their old lives entirely. COVID-19 created a new normal.

How long will it take for people to return to their original workplaces and spend money on things like luxuries or plane tickets? Americans have essentially stopped flying. When will restaurants open again, and how long until they have enough business to break even? How many quarters will it take for corporations to recover their original revenue streams? The chances are high that recovery will look like a multi-quarter process.

Even if President Trump’s target date to re-open the economy on May 1st is reached (unlikely), any positive reaction from the market will be scaled-in. In addition, the likelihood of a second wave in COVID-19 cases remains high in America, because as a whole, we haven’t done enough to reduce that risk.

One caveat to that is we’ve likely seen such a dramatic rise in cases only recently because the streamlining of testing began so late into the outbreak. As a personal anecdote, when my father became sick, he was tested six times and all by different people, and each test returned negative. Only when we looked inside his lungs was it obvious that he’d developed coronavirus, which is similar to pneumonia. So to wrap that up, the tests aren’t always effective and moving forward, we are going to see more cases and deaths. If we ease up on social distancing and restart business as usual too early, the US may experience a second wave like what happened in Singapore, Vietnam, Taiwan, and Shanghai.

Oil and debt: Why the US recovery matters

The USA is still the most influential economy in the world, and the dollar remains as the reserve currency. But there’s a caveat to that — We’re also the most debt-ridden and credit-driven economy. This economic shutdown has grave consequences because many countries own US debt.

From major companies down to the average citizen, America doesn’t have any savings. Too many people and businesses were running on thin margins when the market crashed, now many of them cannot survive more than a month without their previous income. Layoffs have climbed past 16.7 million in the US with those numbers expected to rise.

The overall market is in a dead cat bounce. This bullish rally in a bear market as US banks prepare for a flood of bad loans, defaults, and bankruptcies, is no bullish move at all.

Oil was crushed yesterday and fell under $19 this morning. Oil makes up 8% of US GDP and the industry employs nearly 9 million people in the country. That’s almost 6% of the entire workforce. At $30 a barrel, 61% of oil companies can remain solvent. That means 39% at $30 are already insolvent or on the brink of bankruptcy. This morning, we’re $10 away from that $30 mark.

Bloomberg released data on March US retail sales, which fell by a record 8.7% while the US Empire State factory index slumped 56.7 points to a record low. That hasn’t happened since the early 2000s.

How does all this tie into cryptocurrency markets?

The recent top of crypto was between February 12–15. The S&P 500 topped out on February 19. That could indicate that BTC’s price action is predictive of the near future direction of equities.

Bitcoin is a high-risk speculative asset, its liquidity is much lower than more heavily traded names like those which make up the S&P 500. If you need to pull $100 million from the cryptocurrency market, it’s best to do that over a span of a couple of weeks so as not to cause a cascade in price. Compare this to the stock market where a $100 million withdrawal wouldn’t make a dent in price.

This kind of stair-stepping out of an asset by institutions and wealthy individuals could be observed in crypto a couple months ago, and now it can be seen again in recent price action.

What are my current positions and ideas?

I’m in a BTC short from 7165, which so far has been a nearly $500 move, now I’m looking for a clean break past these levels on the hourly time frame: If price holds below 6750, I’ll consider adding to my short position.

In the coming weeks, I am looking for ideal entries to buy GLD, MSFT, FB, BYND, and BTC.

Disclaimer

Information provided by Cryptosomniac, LLC is not intended to be utilized in making any financial decisions and is not a solicitation, nor recommendation to buy, hold, and/or sell a particular product, digital asset, or ICO.

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