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Nasdaq, Bitcoin, Inflation – FinTwit Trends to Watch Next Week

Nasdaq, Bitcoin, Inflation – FinTwit Trends to Watch Next Week

Rich Dvorak, Analyst

TOP FINTWIT TRENDS – NASDAQ ($NDX), BITCOIN ($BTC), INFLATION IN FOCUS NEXT WEEK

  • The Nasdaq Composite has faced heavy selling pressure amid surging Treasury yields
  • Bitcoin and Dogecoin fell sharply as major cryptocurrencies struggle to stay in demand
  • Fears of not-so transitory inflation are intensifying the Federal Reserve tapering debate

Inflation has been the talk of town this past week, and it will likely remain a dominant theme in the week ahead. Inflation fears worsened after red-hot CPI data was released last Wednesday, and this intensified the Fed taper debate. Speculation that inflation is not-so transitory and that mounting price pressures will force the Fed to act – via tapering asset purchases and bringing forward interest rate hike guidance – has sent Treasury yields snapping sharply higher.

This has weighed negatively on tech-heavy stock indices like the S&P 500 and Nasdaq, but less so on the Dow Jones. Major cryptocurrencies like Bitcoin and Dogecoin nosedived, partly due to lack of hyping from Elon Musk, who announced on Twitter that Tesla will no longer accept Bitcoin as payment for its electric vehicles. What are FinTwit traders watching out for across these key market themes in the week ahead?

NDX – NASDAQ PRICE CHART: DAILY TIME FRAME (22 OCT 2020 TO 13 MAY 2021)

Nasdaq Price Chart

Chart by @RichDvorakFX created using TradingView

I pointed out when the Nasdaq extended its slide as bond yields spiked in response to Fed taper fears that the selloff was starting to look a bit overdone. The ascending trendline connecting the 02 November and 05 March swing lows will likely be crucial for Nasdaq bulls to maintain. Nearside technical support around the 12,930-price level is also highlighted by the 61.8% Fibonacci retracement level of the Nasdaq’s year-to-date trading range. Failure to maintain altitude here brings the 78.6% Fibonacci retracement level and 200-day simple moving average into focus.

Reclaiming the 50-day simple moving average could see some follow through higher by the Nasdaq to test support-turned-resistance around the 13,715-price level before all-time highs are reconsidered. Stocks might continue to face headwinds if inflation fears linger and Treasury bond yields keep pushing higher. On the other hand, softer Treasury yields stand to alleviate some of the downward pressure felt by stocks and could open the door for the Nasdaq to rebound back higher.

BTC – BITCOIN PRICE CHART: DAILY TIME FRAME (27 DEC 2020 TO 13 MAY 2021)

Bitcoin Price Chart

Chart by @RichDvorakFX created using TradingView

Bitcoin price action officially fell into bear market territory this past week after sinking over -20% from its 14 April swing high just shy of $65,000. Bitcoin bears drove the crypto sharply lower after Elon Musk backpedaled his support by announcing that Tesla has suspended vehicle purchases using BTC due to environmental concerns around Bitcoin mining. When Tesla first announced its $1.5-billion Bitcoin investment on 08 February, it sparked an eye-popping 19.5% gain that day to close right above $46,400. Though Elon noted that Tesla will not be selling any Bitcoin, this development does not bode well for the narrative of increasing private sector adoption. Not to mention, after more criticism from SEC Chair Gary Gensler during a congressional testimony, who said the “odds we’ll see a Bitcoin ETF approved in 2021 are very low,” there was another blow to Bitcoin demand.

Potential for a pullback by Bitcoin was hinted at by bearish divergence on the relative strength index for a while, as I previously pointed out. This brings to focus possible technical support levels that might be able to keep the largest cryptocurrency by market cap afloat. Bitcoin bulls might look to defend the $45,055-price zone underpinned by the 28 February close. Breaching this technical obstacle exposes prior resistance-turned-supported provided by the 09 January swing high. A larger correction could see Bitcoin bears make a push toward the 200-day moving average before eying year-to-date lows around the $30,000-price level. That all said, perhaps Ethereum can continue to outshine Bitcoin performance.

DXY – US DOLLAR INDEX PRICE CHART WITH TEN-YEAR TREASURY YIELD OVERLAID: DAILY TIME FRAME (24 DEC 2020 TO 13 MAY 2021)

US Dollar Price Chart with Ten-Year Treasury Yields

Chart by @RichDvorakFX created using TradingView

Inflation fears – or lack thereof – will likely be reflected by changes in Treasury yields and corresponding US Dollar volatility. Another sharp jump in Treasury yields could indicate that bond market investors are taking upside risks to inflation seriously and pricing in potential that the Fed might need to taper policy sooner than rather than later. Invalidating technical resistance posed by the 1.70% level could be telling. Though this may weigh negatively on speculative assets like stocks and crypto, it would likely coincide with a stronger US Dollar as highlighted by the generally positive correlation between the DXY Index and ten-year Treasury yields.

Conversely, softer Treasury yields would likely suggest that the Fed is doing its job keeping long term inflation expectations anchored and markets buying into the transitory narrative. This is why FinTwit traders might want to consider keeping the direction of Treasury yields and the US Dollar toward the top of their radars for potential bellwethers to where markets might head next.

-- Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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