12/16 - Macro for Humans
Market Overview
Headline
Bitcoin Stumbles as Stock Market Climbs: A Tale of Two Trends
Summary
Bitcoin is facing bearish pressure while the S&P 500 continues to climb. Meanwhile, rising bond yields and a weakening dollar are creating a complex backdrop for crypto traders.
Mood
The market feels like a tug-of-war between optimism in stocks and caution in crypto. It's like watching two different games play out on the same field.
What Changed Recently
Bitcoin has shifted from consolidation to a clear downtrend, breaking below key support levels. This contrasts sharply with the stock market's continued strength.
Comparative Market Analysis
Vs 7 Days Ago
Stocks
The S&P 500 is up 0.54%, maintaining its bullish trend. This strength hasn't translated to crypto, suggesting a decoupling of Bitcoin from traditional risk assets.
Dollar
The US dollar has weakened over the past week, which would typically support Bitcoin. The fact that it hasn't highlights the current bearish sentiment in crypto.
Interest Rates
Bond yields have been creeping up, indicating expectations of higher rates for longer. This is creating headwinds for both stocks and crypto, though stocks seem more resilient for now.
Bitcoin Dominance
Bitcoin dominance has remained relatively stable around 59%, suggesting the current downturn is affecting the broader crypto market rather than just Bitcoin.
Vs 14 Days Ago
Stocks
The S&P 500 has gained 1.74% over two weeks, showing accelerating momentum. This divergence from crypto's performance is notable and could signal a shift in investor risk preferences.
Dollar
The dollar's decline has accelerated over the past two weeks. Normally this would be a tailwind for Bitcoin, making its weakness even more concerning for bulls.
Interest Rates
The uptrend in bond yields has become more pronounced over the past two weeks, contributing to a less favorable environment for risk assets, particularly crypto.
Bitcoin Dominance
Bitcoin dominance has been consolidating over the past two weeks, indicating no significant rotation between Bitcoin and altcoins despite the market downturn.
Crypto Specific Trends
Current State
Bitcoin Vs Alts
Neither Bitcoin nor altcoins are attracting significant inflows right now. It's like watching a game where both teams are playing defense and no one's scoring.
Hot Sectors
In this bearish environment, stablecoins and some DeFi protocols focused on capital preservation are seeing increased interest.
Volume And Activity
Trading volume for Bitcoin has increased as prices have fallen, suggesting strong selling pressure and a lack of dip-buying enthusiasm.
Key Shifts
Week Over Week
The most significant change is Bitcoin breaking below key support levels with increasing volume, signaling a potential trend change from consolidation to downtrend.
Two Week Trend
Over the past 14 days, we've seen a clear shift from neutral consolidation to bearish sentiment in crypto, contrasting sharply with the stock market's continued strength.
Notable Reversals
The relationship between Bitcoin and the dollar has notably reversed. Typically, dollar weakness supports Bitcoin, but that correlation seems to have broken down in the short term.
What This Means For Traders
If Youre Bullish
- Look for signs of selling exhaustion, such as a bullish divergence on the RSI or a high-volume reversal candle
- Wait for a clear break and close above the nearest EMA (likely the 20-day) before considering long positions
- Use tight stop losses and consider scaling into positions rather than going all-in at once
If Youre Bearish
- Short-term traders might look to short rallies to the 20-day EMA or other overhead resistance levels
- Watch for a break below $82,500 as confirmation of continued bearish momentum
- Be cautious of potential relief rallies, which can be sharp in oversold conditions
If Youre Uncertain
- Consider sitting on the sidelines in cash or stablecoins until a clearer trend emerges
- Watch the $85,000 and $82,500 levels closely – a break of either could signal the next major move
- Pay attention to the relationship between Bitcoin and the S&P 500 – a return to correlation could signal a sentiment shift
Evolving Trading Guidance
What Changed
From 7d Ago
A week ago, range-bound strategies were optimal. Now, trend-following approaches favoring the downside are more appropriate.
From 14d Ago
Two weeks ago, traders were looking for a breakout from consolidation. That breakout has occurred to the downside, shifting focus to bearish setups and risk management.
Current Best Opportunities
Short-term traders might look for shorting opportunities at resistance levels. Longer-term investors could start planning entry levels for accumulation if the downtrend continues.
Approaches To Avoid
Avoid trying to catch the bottom with large positions. The trend is bearish until proven otherwise, so 'buy the dip' strategies are risky.
Timing Considerations
This is a time for patience. The best trades may come after we see signs of selling exhaustion or a clear trend reversal.
Key Levels To Watch
Critical Thresholds
The $82,500 support for Bitcoin is crucial. For the S&P 500, watch the 4.25% level on the 10-year Treasury yield as it could impact overall risk sentiment.
Recent Breakouts
Bitcoin has broken below the $85,000 support level, which is now likely to act as resistance.
Approaching Tests
The next major support for Bitcoin around $82,500 may be tested soon if selling pressure continues.
Final Advice
Main Takeaway
Respect the bearish trend in crypto but be prepared for a potential trend reversal, especially if broader market strength begins to influence crypto sentiment.
Biggest Change
The most significant shift is Bitcoin's break from consolidation into a clear downtrend, diverging from stock market strength.
Risk Reminder
In this volatile environment, position sizing is crucial. Don't let the fear of missing out lead you to overexpose yourself in either direction.