How long can the Nasdaq keep going?
Bitcoin ("BTC") is one of the top 2024 winners with a gain of around 140%. In our view, bitcoin has now entered a fear of missing out (FOMO) phase, where we believe there is currently some overshooting in the market. The market is expecting a 25 basis point (bps) rate cut from the Fed today, Wednesday 18 December. Technical analysis suggests that the Nasdaq is currently overbought, while the MACD has given a soft sell signal for the S&P500.
Case of the week: Full-throttle FOMO for bitcoin
Time to do some contrarian thinking
It's probably impossible to overlook, but the big talking point of the last few months has been cryptocurrencies, and in particular BTC. Up around 140% year-to-date and recently hitting a new all-time high, it's safe to say that BTC owners will be at the top of the winner's list in 2024. Most of BTC's gains this year have come from August onwards, particularly after the US election. President-elect Donald Trump has been vocal about his positive attitude towards cryptocurrencies, with ambitious goals such as a strategic reserve of BTCs. However, as we all know, Donald Trump is not known as a man of his words. Therefore, BTC investors should not take his words for granted.
As with all periods of strong market expansion, speculative fever can be high, so let's not forget the FOMO effect. Markets are driven by a fundamental psychological principle: fear and greed dictate behaviour. When an asset is at its lowest, fear dominates, and few are willing to buy. At its peak, euphoria sets in as everyone rushes in to avoid missing out, creating the FOMO effect. This emotional cycle is at the heart of market dynamics, and it's particularly important for BTC investors to keep in mind right now. As prices rise, they often defy textbook logic by attracting even more buyers. Momentum builds, trends intensify, and prices climb higher. Conversely, when prices fall, selling pressure increases as investors scramble to avoid deeper losses.
What will the result be? Markets tend to overshoot in both directions. At the bottom, selling exhausts itself and trading volumes shrink. Bold buyers step in, pushing prices higher as demand begins to outstrip supply. At the top, the opposite happens: buyers exhaust themselves, leaving prices fragile and vulnerable to even small shocks. A single large sale can cause panic, triggering a rush for the exits and sending prices tumbling. This has happened to BTC prices before, and will surely happen again, as every bull market has its limits.
In other words: When mainstream FOMO is at full throttle: It's time to plan your short. Or if you already own BTC, it's time to plan your exit and remember what J.P. Morgan once said: "I made my fortune by selling early".
BTC (USD), one-year daily chart
BTC (USD), five-year weekly chart
Macro comments
The European Central Bank (ECB) cut its key interest rate by 25bps to 3.0% on 12th December and revised the growth outlook for the Eurozone slightly downwards.
The composite eurozone Purchasing Mangers’ Index (PMI) rose slightly to 49.5 in December from 48.3 in November and remains just below the critical level of 50 that that indicates a slowdown in activity. In the US, the economy is more dynamic and the composite PMI rose further to 56.6 from 54.9. It is the services sector in particular that is driving the US economy. Presumably hopes for tax cuts and deregulation after the US presidential election. which contributed to the December rebound.
Today, Wednesday the 18th, we start with the Japanese Trade Balance for November. Then we get the UK Consumer Price Index (CPI) and Producer Price Index (PPI) for November. This is followed by November CPI and October Construction Output from the Eurozone. From the US, we have November Housing Starts (see chart below), Q3 Current Account, Oil Inventories (Department of Energy), weekly statistics and a Federal Reserve (FED) rate announcement where the market is expecting a 25bps cut followed by a pause in January. There will also be interim reports from Micron, Lennar and General Mills on Wednesday.
US Housing Starts (million units), December 2022 to November 2024
On Thursday the 19th, we start with the German Gesellschaft für Konsumforschung (GfK) Consumer Confidence for January, followed by the French Industrial Expectations for December. From the US, we get initial jobless claims, Q3 Gross Domestic Product (GDP), the Philadelphia Fed index and private consumption and expenditure (PCE) plus the Kansas City Fed index, the last three for December. Thursday will also see interest rate announcements from the Bank of Japan, the Swedish Riksbank, Norges Bank and the Bank of England. Quarterly results are also due from Accenture, FedEx and Nike.
Friday the 20th begins with the Japanese CPI for November. In Europe, the Swedish and German PPIs will be released in the morning, as well as UK retail sales, all for November. In the US, the Michigan index for December will be released.
Risk has shifted to the downside
Momentum is fading. This is evident on the S&P 500 as the MACD has given a soft sell signal while the index is trading sideways. The index is supported by the MA20 but a break below will trigger a sell signal with the next level on the downside just above/around 5,925.
S&P 500 (in USD), one-year daily chart
S&P 500 (in USD), weekly five-year chart
Despite increasing yields, Nasdaq is rallying. Relative Strength Index (RSI) is on overbought levels while the other indices are struggling.
Nasdaq 100 (in USD), one-year daily chart
Nasdaq 100 (in USD), weekly five-year chart
The DAX is consolidating under bearish momentum as indicated by the MACD, which appears to be on the verge of generating a soft sell signal. The risk is to the downside.
DAX (in EUR), one-year daily chart
DAX (in EUR), weekly five-year chart
Meanwhile, the OMXS30 is showing apparent weakness as the index is currently trading below its MA20 while the MACD has generated a soft sell signal. The next level to the downside is at 2,530, followed by 2,485.
OMXS30 (in SEK), one-year daily chart
OMXS30 (in SEK), weekly five-year chart
The full name for abbreviations used in the previous text:
EMA 9: 9-day exponential moving average
Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence in which each successive number is the sum of the two previous numbers.
MA20: 20-day moving average
MA50: 50-day moving average
MA100: 100-day moving average
MA200: 200-day moving average
MACD: Moving average convergence divergence
Risks
Investors in the products are exposed to the risk that the Issuer or the Guarantor may not be able to meet its obligations under the products. A total loss of the invested capital is possible. The products are not subject to any deposit protection.
If the product currency differs from the currency of the underlying asset, the value of a product will also depend on the exchange rate between the respective currencies. As a result, the value of a product can fluctuate significantly.
The value of the products can fall significantly below the purchase price due to changes in market factors, especially if the value of the underlying asset falls. The products are not capital-protected
Product and possible financing costs reduce the value of the products.
Due to the leverage effect, there is an increased risk of loss (risk of total loss) with leverage products, e.g. Bull & Bear Certificates, Warrants and Mini Futures.