Bloodgood's Notes #138
Powell is confident in a soft landing, interest rate cuts brings a new wave of worry and more
Fundamental Overview
In case anyone had any lingering doubts regarding Powell’s flip to full-on dovish policy, everything became crystal clear at the Jackson Hole symposium last week. During his speech at this crucial event, Powell was confident in a soft landing as inflation is approaching the 2% target, while the weakening of the labor market means that rates need to go down. This is, of course, excellent news for risk-on assets (no wonder that the S&P 500 had its highest weekly close ever), but the imminent rate cut has set off a fresh wave of worry about the yen carry trade that I covered in detail early this month. Back then, only a fraction of the capital caught up in this trade was forced to bail, and there’s no telling how many trillions of dollars are still in there. Given that USD/JPY is currently less than 2% above the low that sent global markets into panic mode on August 5, some are worried that a further reduction of the interest rate differential will lead to more chaos. The fear is very understandable (and USD/JPY is definitely something to keep an eye on), but on the other hand the U.S. will do absolutely everything that it can to prevent turmoil right before the elections.
Bitcoin
Bitcoin bounces out of the accumulation zone only to get rejected at the daily resistance.
Last week, we discussed that BTC was accumulating slightly above its breakdown level at around $60k, which was followed by a bounce a couple of days later. A strong bounce led Bitcoin to the daily resistance at $64.5k, which seemed too strong to break. At the time of writing, Bitcoin is trading back in the accumulation zone, which looks shaky, and I am not completely sure it will hold. The big question now is whether this was a lower high and if we are on a path to make a new low, potentially dropping below $49k.
Historically, September is not a bullish month for Bitcoin, and with the elections coming, we should have an interesting fall. To be honest, I don’t expect this bearish structure to change this year, but I am positive that we can win some nice trades with this price action and get ready for the 2025 bull run.
Just this week, we got two perfect bounces off our levels: one from the accumulation zone and a rejection at the daily resistance.
Stick to your plans.
SPX, Gold, and DXY
Stocks take a breather at the all-time high.
While crypto dipped overnight, we can see SPX staying healthy and eager for a move upwards. It’s hard to make any calls here as any asset that trades around the ATH is unpredictable. Either it gets rejected and we see levels below $5,260, or we see more strength and push deeper into new ATH territory.
Gold has slowed down and eyes a reversal.
There’s not much we can do right now, as the only logical entry here is around the breakout area at $2,400.
Not much has changed with DXY either. As long as it remains under the 101 level, we are good. However, if we start seeing a bounce and follow-up, we should get more cautious with risk-on assets
Ethereum
Ether breaks below the $2,600 weekly level.
While at the beginning it looked like Ether would bounce from the aforementioned level, it was quickly rejected at the $2,819 level. While Bitcoin is still in control and Ether will most likely follow its movement, there is a big gap from $2,600 to $2,000, which is the target for my bids in case this weekly candle closes below $2,600.
Ethereum has been underperforming in this cycle given the fundamentals it has, so I expect big things in 2025.
Concluding notes
The AI narrative has so far proven to be much more resilient than many were expecting, and many fortunes were lost shorting NVIDIA as it continued rallying again and again. But if you’re exposed to NVIDIA directly or indirectly (and at this point, even the S&P 500 counts as indirect exposure), you might want to pay attention to its earnings report, which will be released after the closing bell today. NVIDIA has managed to beat estimates on all its earnings reports since the start of 2023, and nothing less than that will allow it to justify its current valuation above $3 trillion. That’s not to say that you should expect the entire AI bubble to pop if one company fails to have spectacular financials, but it does warrant some caution, especially given how prominent that company has become.