These are times of volatility and uncertainty due to highly atypical circumstances. Consequently, traditional prediction models are not working. Under “normal” circumstances, it is a bit easier to make predictions. This happens, because the chances of obtaining a certain result are greater. This is not the case in particularly atypical situations. Thus, the investor must prepare for the different scenarios. bullish movement bearish movement. Lateral movement. What is your plan?
The investor’s job is to act in a universe of three options: buy, sell or hold. We buy on a bullish forecast. We sell on a bearish forecast. And we wait for a side forecast. In deep uncertainty, we stick to our imperfect forecast and prepare very well for possible setbacks. Risk management is essential.
What is the current trend? The current trend is down. The curvature of the 200-day simple moving average is showing us that the probability of going down in price has been greater than the probability of going up in price. In the short term, the trend is more sideways. But we must be very careful, because that relative stability was gained after a big drop. That drop broke an uptrend line and several key supports. The 20-day and 50-day simple moving averages are not only now above the current price forming resistance, but have also left their bullish curve.
What happened? During July and August, the market misread our macroeconomic reality by overreacting to advances in the fight against inflation. Optimism was rational, but exaggerated optimism was not. It was thought that the Federal Reserve, sooner rather than later, would make a major shift in monetary policy to return to stimulus in a matter of months. The hope generated by this assumption triggered a bear cycle rally that lasted for several weeks. However, the minutes of the Federal Reserve published last Wednesday and the statements of its members in recent days, contradict the narrative that was driving that rally. Consequently, prices crash with the change in sentiment. Disappointment stimulated the return of pessimism.
Now the markets are waiting. We are all waiting, for this Friday, the statements of Jerome Powell, director of the Federal Reserve. Surely, we will have a lively anticipation the days before. That is, some volatility before the announcement. doWhat’s the big announcement? It is assumed that nothing of the other world. What is expected is to hear more of the same. There is still a lot of work to do. We still can’t claim victory. We depend on the data as it arrives. There is progress, but it is not enough. It will try as much as possible to orchestrate a “soft landing”. Lastly, friend Powell will surely avoid speaking precisely about the Fed’s future decisions so as not to commit.
What the markets are really waiting for is a reading of the tone. If the tone is interpreted as excessively that of a hawk (“hawkish”), things may turn red by Friday afternoon. If, on the other hand, the pitch is interpreted as relatively that of a dove (“dovish”), a relief rally could follow. Of course, if market expectations play out in a more neutral way, we may have a moderate relief rally. I daresay Powell’s intentions are not to cause any great surprises. Powell will want to meet expectations in a neutral way. However, communication has not been the strong arm of the director.
Bitcoin’s current support is $20.8K. That’s where the last fall stopped. The current resistance is $21.6K. In other words, we cannot say that we have had a significant rebound. However, today Wednesday, we are trying to break this resistance. In fact, we already broke it at the time of publication. If we achieve ultimate success on today’s and tomorrow’s candle, our new resistance would be the 50-day SMA ($22.43K). The volume is not much. And the indecision is quite high. However, there are the bulls fighting back. For the past few days, the Stochastic RSI has been giving oversold signals. The problem is that there seem to be not enough buyers right now.
Many investors right now are underwater. That is, they are below the price made by buying at prices higher than the current one. That means that the illusion of leaving the red zone works as a great motivator. Any excuse is valid, because emotions are running high. The problem is that the macroeconomic situation does not help much. There are not enough buyers right now. Because investors are in conservative mode. The desire not to lose is greater than the desire to win. What hurts assets risk on like Bitcoin.
September and October are complicated months. Investors are waiting for a new increase in interest rates at the September meeting in the neighborhood of 50 points or 75 points. Everything will depend on the data between now and the days of the meeting. In fact, an increase of 1.25 points is expected by the end of the year distributed in the remaining meetings. We are talking about starting 2023 with rates of 3.8% or 4%. And increase a little more in the first meetings of next year. It will be enough? Some argue that final rates should be set at 5%. Others are saying that rates must be above the rate of inflation to be successful. But, at this point, it’s speculation. Again, everything will depend on the data. In particular, inflation and employment.
Reaching the 2% inflation target is not easy. Will it be achieved in 2023? It will not be easy. Some say it is unlikely. The Federal Reserve will surely continue to withdraw liquidity to reduce demand. At some point, it will take a pause. And it will wait for the arrival of the data. It’s not too unreasonable to assume that rates, after this point, will stay the same for a while until the Fed is convinced that inflation is under control.
Now, the fight against inflation awakens the other demon. The demon of recession. Which is our other concern. The next corporate reporting season is in October. Will we meet with a more palpable slowdown? According to estimates, 2023 promises to be a difficult year for revenue. So, we are between a rock and a hard place. Inflation or recession? Both? In such circumstances, the rational expectation is the anticipation of much volatility and uncertainty. In this environment, it is not a bad idea to add a little more stability and predictability to our portfolio with a little more cash and bonds. We can make selective purchases to gradually accumulate. However, such purchases must be made under the aegis of excellent risk management. Diversification, balancing, hedges, stop loss, objective analysis of risks and opportunities, rational expectations, etc. Fortune favors the intelligent, prudent and patient investor.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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