Week of March 28th, 2022
We are entering the stage of the market cycle where everyone is at the party and we all know the punchbowl is about to be taken away. Everyone’s jumping in line to drink the punch before the party ends. The S&P and Nasdaq continued to trade inverse to commodities last week as the VIX also continues to fall. Bond indices year-to-date continue to have the worst performance on record with a flattening and potential inversion of the yield curve hinting at ominous recession fears. Despite an increasingly hawkish Fed, we expect asset prices to climb into the next few Fed rate hikes before reality sets in. The next Fed meeting in May will likely see a 50 basis point hike, followed by additional the potential for 50 basis point hikes at each Fed meeting until the end of the year. A possible further increase in CPI, released on April 12th, will only hasten the Fed’s resolve and mandate to attempt inflation control via aggressive rate hikes. The U.S. currently has the highest inflation in all of the developed world at 7.9%, which suggests the Fed’s pandemic response was also greater than any other country in the developed world.
The Russian-Ukraine war has now entered the 5th week, appearing to be no closer to immediate ceasefire negotiations than previous weeks. Some reports have also shown Russian military presentations entering a second phase of the war. However, negotiators are said to have entered talks in Istanbul, Turkey on Monday. Commodities markets continue to show signs of strain with Putin instructing the Russian government, central bank, and Gazprom to implement gas payments from ‘unfriendly countries’ in rubles by March 31st. Ammonia and fertilizer, of which Russia is a leading exporter, have show a significant rise in prices over the past week, well-beyond 2008 all-time highs. President Biden’s visit to the Polish-Ukrainian border last week further bolstered the seriousness of U.S. commitments to NATO, while avoiding direct Russian-related conflicts in Ukraine.
Bitcoin now holds a +3% since yearly open, as Q1 draws to a close this week. The wide range-bound consolidation and current explosive push above the multi-week range has been very similar to Q1 2019, which led to a continuous bullish rally throughout Q2 2019. A seemingly important catalyst for the breakout has been large BTC purchases associated with the Terra blockchain and UST algorithmic stablecoin. The project’s founder, Do Kwon, recently discussed the new Bitcoin-linked tokenomics as a reserve asset to defend the UST $1 peg. The proposal and execution has been spearheaded by the Luna Foundation Guard and Jump Trading. Kwon has also unveiled plans to increase the reserve to $3 billion, by selling additional UST for Tether or USDC. The UST reserve wallet currently holds nearly 28,000 BTC valued at $1.32 billion.
Technical analysis for Bitcoin has now confirmed a bullish breakout above horizontal resistance at $45,000. The ascending triangle chart pattern consolidation yields a potential target range of $50,000 to $55,000 based on the 1.618 Fibonacci extension and measured move of the pattern. Price has also breached above the 200-day exponential moving average (EMA) for the first time since late last year, signifying a possible bullish trend reversal. An upcoming 50-day EMA and 200-day EMA bullish cross will likely occur in the beginning of Q2. Near-term overhead resistance now stands between $47,600 and $48,700 based on a yearly price pivot and the 2021 volume range profile. Any significant pullbacks in price will likely find support in the previous resistance zone at the $45,000 region.
Steven McClurg, CIO
Bill Cannon, Portfolio Manager
Wes Cowan, Portfolio Manager, Head of Defi
Josh Olszewicz, Head of Research
Sean Rooney, VP Research and Trading
Will McDonough, Vice Chairman, Investment Committee
Leah Wald, CEO, Investment Committee
Shannon Smith, Head of Investor Relations