Nasdaq, EURUSD and Bitcoin Talking Points:
- The Nasdaq 100 and Dow Jones Industrial Average edged record highs this past session in a broad but tempered nudge to risk trends
- Liquidity conditions remain my top market consideration as the pull of holidays urge a convergence to the ‘Santa Claus rally’ over uneven fundamental issues
- Record highs for US indies and multi-year highs for EURUSD are unmistakable but momentum is up to challenge while Bitcoin seems unrestrained
We are heading into a dichotomous market condition. On the one hand, a range of speculative favorite benchmarks are pushing meaningful and even record highs. On the other, fundamental issues continue to percolate while liquidity inevitably fades into the holiday season. Can the charge from the Dow Jones Industrial Average or EURUSD keep pace with the realities of a steady slide in market depth and the general uncertainty of matters in growth and stimulus? For the time being, risk appetite is extending its swell with the Nasdaq 100 leading US indices to fresh record highs while speculative favorites like Tesla shares (TSLA) attempt to lift ever-more-extraordinary climbs for 2020.
Chart of Nasdaq 100 and Tesla (Daily)
Chart Created on Tradingview Platform
For those that are looking for justification for a bullish default, they need look no further than the seasonality norms of this period. The month of December historically averages a gain for risk-leaning assets. That is a material contribution to the so-called ‘Santa Claus rally’ which denotes a typical December climb for risk assets. With a skewed trading period for liquidity and natural drop in volatility, it is perhaps not very surprising that benchmark capital market assets tend to advance on average, but that same bias does not readily translate into conviction. I maintain a sense of caution that a bullish tendency will be mild while sentiment reversals are prone to fear exacerbated by thin markets.
Chart of S&P 500 and VIX Seasonal Performance by Month Back to 1980
Chart Created by John Kicklighter with Data from Bloomberg Terminal
The Fundamental Themes Still on Tap
Market conditions remain my principal concern, however, that doesn’t mean fundamentals and technicals are without merit. Both standard measures of analysis are playing serious role for EURUSD. From the chart, this benchmark pair has cleared the midpoint of the historical range (since the Euro officially began to trade in 1999) as well as the center point of the 2014-2017 bear leg. It is worth noting that that latter market range defined a dramatic effort from the ECB rate decision that tied massive stimulus to an explicit technical level (1.4000). We have heard concerns from European officials since this same period has put pressure on 1.2000.
| Change in | Longs | Shorts | OI |
| Daily | -8% | -11% | -9% |
| Weekly | -15% | 25% | -4% |
Chart of the EURUSD with 20 and 200-Week Averages (Weekly)
Chart Created on Tradingview Platform
Looking back to the poll I conducted last week on whether the EURUSD will be able to clear the aforementioned, high-degree technical boundary (1.2150) before year end; it seems that those that thought it would be the case are ready to take a victory lap. It certainly seems that we have overtaken that ceiling, but a technical break and move with intent are very different categorizations. Follow through still abides the laws of liquidity. If there is any singular spark that I’m look to that could alter course or prompt acceleration for this benchmark cross, it would US fiscal stimulus discussions. The US government shifted to a pessimistic grumble this past session, but this perspective seems to reverse every 12 hours or so.
Twitter Poll on Whether EURUSD Will ‘Break’ 1.2150 Before Year End
Poll from Twitter.com, @JohnKicklighter
Similar to the adjectives used to describe US stimulus discussions, the perspective of UK-EU post-Brexit trade talks seems to swing even more dramatically between optimism and pessimism. This past session, officials took the latter view of the forecast. According to EU President Ursula von der Leyen, “big differences remain to be bridged” between the two with only a few weeks left of the year. On the British side, Minister for the Cabinet Office Michael Gove put the chances of a deal at “less than 50 percent”. Jawboning this late in the game does little benefit to anyone. If it weren’t for this uncertainty for the Sterling, GBPUSD’s break of 1.3500 may have generated a little more traction. Instead hesitancy seems the dominant feature of the landscape.
| Change in | Longs | Shorts | OI |
| Daily | 0% | -17% | -6% |
| Weekly | -1% | -4% | -2% |
Chart of the GBPUSD with 20 and 200-week Moving Average (Weekly)
Chart Created on Tradingview Platform
Another outlet for global fundamental digestion is the state of the Coronavirus pandemic. The resurgence in cases globally has led to announcements of nationwide restrictions in Germany, lockdowns in London and more stringent restrictions in New York and California State-side. Deaths in the United States have hit a fresh record high while ICU bed availability in Sothern California has hit zero percent. So, while the news of Pfizer’s approval last week and suggestions that Moderna’s vaccine may soon receive the green light may reassure about trajectory; there is still a serious hole from which we need to climb out.
Chart of Covid-19 Related Deaths in the United States (Daily)
Chart Created by John Kicklighter with Data from Bloomberg Terminal
Bitcoin Seems Little Perturbed by Other Markets’ Issues…For Now
While the Dow and Nasdaq may be pushing technical record highs, Bitcoin is absolutely blowing through its previous peaks. The past two-day rally from this benchmark cryptocurrency has registered an incredible 17 percent climb. That is a sound break of 20,000. Generally speaking, this alternative asset does not follow the traditional lines of other assets, but it is not immune to standard systemic themes. While this market trades 24/7, there is still a speculative factor this sort of performance.
Chart of BTCUSD with 20 and 200-day Moving Average with 2-Day ROC (Daily)
Chart Created on Tradingview Platform
I agree with the results of the poll I conducted earlier this week in that BTC is being treated more like than a speculative asset rather than ‘utility’. What does that mean? A utility is a segment of the system that represents a basic amenity. Blockchain has an indelible future for financial clearing in my mind, but that is still a ways out. Further, utilities traditionally trade in very slow and stodgy ways. What we are seeing from Bitcoin and compatriots is anything but reserved. Can we make a transition to speculative fad to systemic ubiquity without the floor dropping out?
Twitter Poll on Whether Bitcoin Better Reflects a Utility, Speculative Asset or Both
Poll from Twitter.com, @JohnKicklighter
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