BEAR HUNTING SEASON
Itβs been a brutal, bare knuckle fight. The bookies backing bears, underdogs fighting in a ringer with less than 4:1 odds on a green close. And with the round 3 bell starting, the bulls are making a major comeback. If they win, we shall burn the βrektemberβ moniker; as bulls go for a combo finisher and impale every bear in a sea of green candles.
As iconic as that image may seem - we are only halfway through the fight. Last week, we saw funding rates flip deeply negative and a big spot premium growing as bulls powered through a wall of worry between 55 and 56k.
If you trade lower timeframes, you could feel the shift in price action. Opening with a weekend of low volume, there was a passive bid drift hardly reflected on the volume bars. Equities hanging on the brink of another leg down. And bitcoin risk was just piled onto the long punters balance sheet for a relentless 48hrs.
I think its becoming harder to ignore the case that bitcoin is now the tail wagging the equities dog. At its size and liquidity, tracking the performance of bitcoin over the weekend, signals to equities futures how to gap open the following monday.
And last week we saw that in action. As we broke this short term downtrend, the reflexive TA short sellers piled into the βobviousβ short. But with no new macro data to gamble on, equities traders slammed the bid button chasing the bitcoin spot bull, triggering a short squeeze and even more buying. The perfect recipe, creating the positive reinforcement loop that lead to the bear massacre.
But, that was last week. This week,
The gang goes to FOMC
Finally, after multiple weeks of death-chop. The time has arrived, the first scheduled rate cut since the tightening of every bulls balls. Held in the death grip that was the most grueling series of rate hikes since the 70s.
But, before we continue - bookmark
https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html, it shall be your compass as we navigate through the next few months.
This gives the implied probability of a rate hike of either 25bps or 50bps based on the CME options market, for this and all subsequent hikes in the future.
...loading coinflip.exe
For the first cut, its a doozy. As we stand today, we are literally 50/50 - and, there is no evidence to suggest that it could go any direction. But we can theorize both,
50bps and rekt:
Inflation Fears: A larger cut might reignite inflation concerns, especially because a lot of the underlying inflationary pressures are still present. This could lead to higher long-term yields as investors demand more return for inflation risk. So the curve to watch is US 20Y and up, if these start moving - start worrying.
Overreaction: 50 bps cut suggests j pow is no longer a believer in the economy's resilience. Triggering panic and overreaction in markets, leading to a self-fulfilling prophecy of economic downturn. A doom loop, that can only be saved by magic stimmie.
Policy Flexibility: Measure twice, cut once - cutting 50bps doesnt leave wiggle room for more - there might be a longer wait period until the next cut. Which gives the market more time to panic - slow and steady lands this plane safely.
Currency Depreciation: ECB cut 25bps, cutting 50bps will destroy DXY - bullish for bitcoin and gold as a SoV, but bearish equities. So pick your narrative, i lean bearish.
Market Volatility: Big cuts, cause panic. The larger the cut, the greater the repricing - if things go whack, cut risk long gold. And if youβve been paying attention, bitcoin isnt βrisk-offβ
50bps and big bulla:
The bat signal: A 50 bps cut could signal that the Fed is aggressively responding to signs of economic weakness, potentially preempting a deeper recession. If the fed takes the R word seriously, the market will PUMP. jpow must utter the sweet song of βlanding this softlyβ at all costs.
Inflation Control: Inflation IS coming down according to the bullshit metrics the fed pushes out. They could believe their own lies, and then 50bps may legitimately be appropriate.
Market Expectations: We at a 50/50, so a 50bps cut is mostly priced in already. Sure, we have a bit of face melting whipsaw PA. But then you long the dip, and strap in for the 100k rip.
Housing: Florida house prices are in the gutter, as well as many other states - cutting 50bps and positive build permit numbers saves us from another 2008.
25bps slow and steady up:
Steady Approach: A 25 bps cut suggests the Fed is in control, aiming for a soft landing rather than reacting to crisis. Investor confidence allows long term risk to flow in, 25bps gives wiggle room for future cuts and provides a safety net for skittish bears.
Inflation Management: Smaller cuts allow for more precise inflation management, reducing the risk of overshooting and having to reverse course, which could be more disruptive.
Psychological Impact: Smaller, consistent cuts might be less alarming to consumers and businesses, maintaining stability while still providing stimmy.
Flexibility: 25bps leaves room for further cuts if needed, providing a buffer against unforeseen economic shocks - like oil continually re-pricing lower.
25bps a short term pain:
Market Disappointment: If markets are expecting a larger cut, a 25 bps move could lead to disappointment, causing sell-offs as investors adjust expectations downwards. This should be short lived, as commentary of future cuts will accompany the announcement
IMO, if its 50 or 25. The monetary policy has shifted, my only fear is that rate cuts are a recessionary signal. If these cuts arenβt enough to reinvigorate the economy we gonna be sitting underwater until the real stimulus comes in. Bitcoin needs fresh money for massive repricings upward. So lets hope for sheryl crows sake, the first cut isnt the deepest. And we have more to come.
But wait, theres more! BOJ is meeting too. I think they still too shook from the last rate change that any updates that cause another yen carry unwind. Might just be detrimental, so I doubt they rock the boat too much and opt for the classic "do nothing" strategy.
Return of the bulla
Last week we broke the STF downtrend, convincingly and we are now headed for the LTF battle lines.
As you can sense, we are still somewhat shaky. With CPI coming up, and price chilling at the mid range. Its a risky bet to be choosing a trend from here. The issue is, the yellow brick gold is still tearing it up to ATHs, and equities look like they want to send it too - but bitcoin still seems a little hungover, and needs a massive catalyst - maybe try meth?
Retail is spooked - bitcoin dominance growing, the only bid we seeing is institutional positioning. Making the case for full send unlikely without real policy easing. Yeah, retail is all in on memes. But these are the slot machine of crypto, and if you look at solana volume - even that casino is rinsed.
Its not all gloom. In a technical sense, trends are shifting in the bull favour.
Long term EMAs and SMAs are flipping green, and at 60k, we are comfortably above the 200D EMA. Suggesting that the worst is behind us, and we can just drift north. This passive drift should eventually clear out liquidation clusters at 61k, sending us into the top of the downtrend resistance.
This is also apparent on the heatmaps, which shows a healthy cluster just as we flip the long term trend.
A chart I have been tracking lately, has been the orderbook delta. Its helped me trade short timeframes, and seems to be a solid signal. Using this in conjunction with the orderbook heatmap has helped me grab scalps.
Iβve found the signal to be stronger on finding good buy entries. So Iβll be looking at how deep the bid bias gets when we find our new support. The spot sell you seeing here, might be the perp rate arb getting locked in - as funding rates move more positive, so I wouldnt index it too much. Take all this data with the way the orderbook is stacked,
And it sets up for some serious liquidation potential this week, I could easily see 61k asks being filled potentially marking a local top as we hit FOMC volatility.
Options Market
If you really want to scrap a confluence of a 61k local top. Max pain is 61k, with 57k as the big expiration coming next.
The large expiration has had some developments. Unsurprisingly we saw max gamma shift and get wider
Suggesting that we could be in for a volatile week. Note - in future, I wish to replace these with surfaces so that we get a better sense of how all expirations look relative to each other.
Strikes are still dominated by covered calls, suggesting the market wants yield and not directional exposure.
If things start really heating up, these covered calls at 67 probably get unwind. But short term I just donβt see that happening.
Hyper1ons thoughts
Last week, we looked at 52k as a local bottom; and 56k acting as a resistance - which turned into a great demand area that I took full advantage of.
For the week coming up, I still see this long term downtrend being a local battleground.
Safe bids at 57k are the gates the goblintown. If bears retake this area, its over. ETH to 10usd, the bitcoin experiment is over. As a bulliever, Iβd like to bid the 200 EMA. Strap in for a 61k liquidation blow off top, and then look for the break of that long term down trend.
Currently I am long spot - and flat on perps. Reason being, I still think we are in a HTF downtrend - so leverage favours short side. For bullas there is work to do, but its been a great week. This next week is going to be a riot - and when the music stops I hope to see more bear heads on green candlesticks.
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