The Federal Reserve decided to raise rates today. That is not a huge surprise. The Fed also reduced the number of rate hikes expected in 2019 by only one hike (from three to two). The stock market is not happy with this. This may result in more tax loss selling in stocks for the balance of the year and in January.
Looking at tech stocks, there is a head and shoulders top on the weekly chart of Nasdaq 100 (QQQ). This would seem to indicate a downside target could be as deep as $125 (Figure 1). QQQ is currently around $158. A move to $125 would be a 20 percent drop. That is nothing in crypto, but it’s huge in equities.
Gann work and candlesticks on the S&P 500 (SPX) quarterly chart shows the potential for a major top and a downside dislocation (Figure 2).
So, how does this impact Bitcoin (BTC)?
In the short term, it looks like there will be a sharp dip in Bitcoin (BTC). Short sellers may pounce on Bitcoin (BTC) assuming that Bitcoin (BTC) will fall along with Nasdaq. This thinking has merit as all risky assets tend to move together on the way down.
That said, perhaps there is a different way to look at it. Despite all the complaining from the world of equities, stocks have not really dropped much relative to crypto. Bitcoin went from $20,000 to $3,200 in the course of 12 months. That’s an 84 percent drop peak to trough. Heading into today, most stocks were close to where they started the year. That’s hardly a disaster.
If you ever thought of a day when the legacy financial system experienced such extreme stress that money flowed into crypto, now would be a time to potentially trade off that theory.
For Bitcoin (BTC) on Bitmex, there are three supportlevels to keep an eye on. Those levels are $3,728, $3,613, and $3,312 (Figure 3).
The $3,312 level is of particular interest. That level in Bitcoin (BTC) is the 76 percent retracement of the initial advance. A dip to this level would wash out weak long positions and potentially create a long-term buying opportunity. Also, $3,350 is a good support on a Fibonacci circle chart that has proved useful in the past (Figure 4).
Bottom Line: It’s time to test the theory that Bitcoin (BTC) is a must-own investment in an uncertain world. Any sharp drop in Bitcoin (BTC) that scares the Twitterverse into being negative could be a chance to buy. It’s easy to buy Bitcoin (BTC) when it’s going up. The easy trade is rarely the right trade. If it’s really a new bull market, bulls will have to make the “tough trade” and buy Bitcoin (BTC) as it’s falling rapidly. Whether you are long or short, please put in appropriate stops losses to protect capital.