Federal Reserve Chairman Jerome Powell said during a question-and-answer session at the Cato Institute on September 8 that the central bank will keep inflation under control. However, these comments did not rattle the market as much as most expected, indicating that traders may be on the lookout for a 75 basis point hike at the Fed’s next meeting on September 20-21.
Bitcoin has been strongly correlated to the S&P 500 and inversely correlated to the US Dollar Index (DXY) for the past several weeks. As the DXY cools after reaching two-decade highs, riskier assets are scrambling to recover.
US stock markets are trying to snap a three-week losing streak, and Bitcoin (BTC) has risen above the psychological level of $21,000.
Does the rally in equity and crypto markets indicate that risk sentiment is back? Let’s examine five asset classes to assess their trends and determine where they will go over the next few days.
BTC/USDT
Bitcoin broke the strong support at $18,626 on September 7th and bounced back above the $19,520 breakout level on September 9th. This may have triggered short covering by aggressive bears, causing prices to rise above the 20-day exponential moving average. (EMA) ($20,434).
The relative strength index (RSI) has risen to the positive territory and the 20-day EMA is flat, indicating that the bears may lose their grip.
The 50-day simple moving average (SMA) ($21,981) may act as a minor barrier, but if the bulls overcome it, the BTC/USDT pair may rally to higher resistance at $25,211. A break and close above this level could complete a double-bottom pattern. Such a move may indicate the beginning of a new movement. The target for this reversal setup pattern is $31,796.
Contrary to this assumption, the pair could enter a few days of consolidation if the price breaks below the 50-day SMA or $25,211.
The 4-hour chart shows the pair holding momentum after breaking above $19,520. The moving averages show gains for buyers, but the oversold zone RSI has completed a slight consolidation or correction in the short term.
If the price breaks below the current level or the highest resistance at $21,900 but does not break below $20,576, it would indicate a shift in sentiment from selling on rallies to buying on dips. That adds up to more than $21,900 in vacation time.
The first sign of weakness would be a break and close below the moving averages. If this is the case, it suggests that the current upheaval may be a narrow rally.
DXY
The US Dollar Index (DXY) is correcting with strong growth. After reaching a multi-year high of 110.78, the index witnessed a profit-recording which pushed the price to the 20-day EMA ($108.64).
While the rising moving average points to the upside for buyers, the RSI has formed a negative divergence, indicating that the bullish momentum may be weakening. If the price stays below the 20-day EMA, the next stop is likely to be the bullish line.
This is an important level to watch because a break and a close below it can indicate a trend reversal. The index could drop to $104.63. A break below this level may indicate that the index may have moved higher.
Conversely, if the price rebounds strongly from its moving averages, it indicates that sentiment remains bearish and traders are viewing the dips as buying opportunities. If bulls push the price above $110.78, the rally may extend to $113.95.
The 20-EMA has declined on the 4-hour chart and the RSI is in negative territory, indicating that bears are dominant in the near term. The index may drop to immediate support at $108.
If the price recovers from $108 but fails to break above the 20-EMA, it indicates that the sentiment has shifted from buying on the dip to selling on the rally. That includes the possibility of a break below $108. If that happens, the index may begin a deep correction.
Contrary to this assumption, if the price changes from the current level and breaks above the 20-EMA, the index may rise to $110.24 and then to $110.78. Buyers must overcome this hurdle to signal a resumption of the uptrend.
SPX
The S&P 500 is trending lower and trying to make a higher floor around 3,900. The price has improved again on the higher line, which indicates that the lower level is attracting buyers.
The 20-day EMA ($4,050) is an important level to watch out for in the near term. If the bulls drive the price above this resistance, it suggests that the last leg of the correction may be over.
The index may then attempt a rally towards $4,200. This level could act as a small barrier, but if the bulls prevail, the rebound could reach the critical profit barrier at $4,325.
If the price breaks below the 20-day EMA, this bullish outlook may be worth it in the short term. If this happens, the bears will try to dip the price below the high line. If they succeed, the decline can reach the maximum support at 3,700.
The 4-hour chart shows that the recent correction has pulled the RSI into oversold territory. That started the loop, which reached the bottom line. To signal a trend reversal, buyers need to push the price above this resistance. The index may rise to the 50-SMA and then to $4,200.
On the other hand, if the price deviates from the cold line and slips below the 20-EMA, it suggests bears to continue selling in rallies. The bears will attempt to push the price below $3,886 and continue the downward trend.
Related: Bitcoin Price Cracks $21K, Trader Says BTC Is ‘Very Compelling’ To Buy Now
GC
Gold futures (GC) are in a bearish trend but trying to form a higher low at $1,700. The price reached the moving averages, which acted as strong resistance, as seen from the long wick on the September 9 candle.
If the price declines from the current level, the sentiment is negative, indicating that traders are selling in rallies. The bears will make one more attempt to break below $1,700 and challenge the crucial support at $1,675.
Conversely, if the price reverses and breaks above the moving averages, it suggests that the bears are losing their grip. That can push the price to the lower trend line. A break and close above this resistance may indicate the end of the downtrend. That could start a rally around $1,825.
The 4-hour chart shows that the bears are strongly defending the profit resistance at $1,737.40. If the price slips below the moving averages, the decline may extend to $1,700. That suggests range-bound action between $1,700 and $1,737.40 for some more time.
Alternatively, if the price deviates from the moving averages, it suggests that bulls are buying on minor dips. The bulls will try to push the price above $1,741. If successful, a rally to $1,774.80 is possible.
C.L
Crude oil futures (CL) have been in high territory for the past several weeks. In August, buyers tried to start a sustained recovery but the bears successfully defended against the August 30 50-day SMA ($94).
The bulls tried to hold the low of $85.73, but the level was broken on September 7 and crude oil continued to decline. A slight positive is that the bulls haven’t let the bear momentum take off. This means buying at low levels. The bulls are trying to push the price back above the $85.73 breakout level.
This is an important level to monitor because if the price stays above $85.73, it could catch more powerful bears off guard. That may cause a short squeeze and the price may rise to the 50-day SMA.
Conversely, if the price falls below $85.73, it indicates that the bears have turned the level into resistance. The sellers will then attempt to continue the downtrend by taking the price below $81.20. If they succeed, the decline can be extended to $70.
Crude Oil’s 4-hour chart shows a positive divergence on the RSI. This shows that the negative trend may be weakening. Buyers have pushed the price above the 20-EMA and the breakout level of $85.73, which is the first indication that the selling pressure may be easing. The rally may extend to $88 next.
Alternatively, if the price fails to hold above $85.73, the bears will try to push the price back below the 20-EMA. If they succeed, the price could drop to $82.71 and later to $81.20.
The rally may not break the trend.
Bitcoin’s recovery is largely driven by a pullback in the DXY and a rally in the SPX as seen in the analysis above. Both of these assets are dependent on the Fed’s action at its next meeting and could determine Bitcoin’s direction in the near term. Bitcoin bulls should continue to closely monitor the DXY and SPX to confirm the bottom in Bitcoin.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and business activity involves risk, you should do your own research when making a decision.