This first week of February is a fundamentally dangerous week for stock market price action. First of all, it brings together all the factors of fundamental influence for the market, in particular the FED and the ECB, and then it can challenge the very euphoric bullish start to the year for risky financial assets. Let’s make the fundamental point as the signals from technical analysis become more and more favorable.
The Federal Reserve (FED) of the United States is close to its Terminal interest rate
It is quite difficult to make a firm choice of adjective to qualify the start of 2023 on the stock market. Having read the headlines of the leading financial press, it is the adjective “euphoric” that stands out the most, or even astonishing, exaggerated, etc.
We are not here to give a French lesson but, all the same, this bullish recovery of the assets massacred in 2022 surprised more than one. In my opinion, this beginning of the year on the stock market can be described as presumptuous and here is why:
- The market is in the process of putting all its eggs in the same fundamental basket, which in itself represents, in the event of an error in anticipation, a significant risk of setback;
- The market is “betting” that the terminal rate of the all-powerful FED will not exceed 5% (note that this week, the FED raised it to 4.75% in its first monetary policy decision of the year) ;
- The market anticipates a rapid FED “pivot”, i.e. the starting point of a downward trend in the FED FUNDS interest rate by the third quarter of 2023;
- The market is finally considering that structural disinflation did indeed begin at the end of last year, and this is where the main market risk lies.
Indeed, any rebound in core inflation measurements at the start of the year would cast enormous doubt on the ability of central banks to bring the inflation rate back to 2% and would remove much of the justification fundamental to the rebound in equities and cryptos since the 1er January.
Chart showing the performance of a selection of financial assets representing all asset classes since the beginning of the year
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Bitcoin (BTC), a new engaging monthly technical close
Let’s now return to the technical analysis of the price of Bitcoin, which has recorded a performance of more than 40% since the start of the year. The market advanced from $16,000 to $24,000 with almost no pause, it is always a technical risk of a sharp retracement when price momentum is vertical.
Let’s take a step back with a focus on the very last update of the chart in monthly data, the only time horizon whose scope reaches several weeks or even several months. Bitcoin just recorded its best monthly technical close since the first quarter of 2019, which at the time meant the end of the bear market.
You will notice in particular the new bullish trend on the LMACD histogram, the MACD technical indicator in logarithmic scale. Finally, for the short-term technical framework, the market remains in an uptrend as long as the support at $21,000 is preserved with the bearish gap at $25,000 in sight.
Chart that shows the price of bitcoin in monthly data and under the base of a logarithmic scale
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Vincent Ganne is a market strategist, technical analyst, trainer on the stock market and speaker on BFM Business. With a long experience in the field of analysis, he offers a global approach to financial markets. Both from a macroeconomic point of view and from a microeconomic point of view. Vincent Ganne also uses many aspects of chart analysis with the aim of forecasting trends in financial assets over the medium and long term.
Vincent Gane
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