Fundamentals
Bank of Japan
BoJ decided to intervene by increasing the interest rates resulting in a sharp increase in the value of the Yen against the Dollar (1). As it happens, the central bank is walking a tight rope.
To increase interest rates would indeed have the said effects but risking adverse side effects on local businesses & hence domestic economic output. A higher borrowing cost will hamper domestic companies, beit startups, family businesses and large corporations, from being able to borrow/leverage for growth. Also a stronger Yen would be an incentive for the population to import more that it export. A weaker incentive to export would be detrimental to domestic earnings.
To let the Yen slide will indeed keep the local economy incentivised to export. However at the cost of the Yen’s strength, lower domestic buying power and consumer price inflation.
Given the tight rope threaded by the central bank which has resulted in the slow improvement of it’s economy in light of it’t 90s Debt Crisis – dubbed as Japan’s Lost Decades (30 years)(2)(3) – it remains to be seen what the effects are on their economy and hence the banks stance in the medium term.
1st Hypothesis:
As for the strength of the Dollar, expect the Dollar to weaken – at least against the Yen. As for against the broad markets, it remains inconclusive given the development of BRICS & it’s ever increasing debt obligation increasing exponentially by the day.
Federal Reserve
Powell is holding the interest rates Higher for Longer. This is motivated by persistent inflation and stronger-than expected labor market (4)(5).
We are seeing a continuation of Tech layoffs, exampled by Intel slashing off 15,000 of it’s employees – 15% of it’s entire workforce (6). Given the trend of forcing employees back to the office threatening them of being laid, the labor market is expected to cool off in the coming months with more layoffs coming (7).
2nd Hypothesis:
It can be hypothesised that only will the interest rates be brought down when unemployment levels are at level unseen since ‘08 or when stock prices bleed.
Crowdstrike & it’s after-effects.
Crowdstrike rolled-out a defective update to all of it’s clients on the July 19th, a Friday. It defective update crashed all computers running Windows. Given Windows large market share in it’s user base coupled with Crowdstrike’s large clientele – consisting 95% from Fortune 500, with nearly 30,000 customers, many of which are large enterprises – the effects are widespread (8)(9).
From Airlines, Banks, Tech companies themselves, Healthcare organisations to Media outlets.
In Airlines in particular, thousands of flight bookings had to be cancelled. The ripple effects are yet to be seen. Also the loss of revenue & profits are yet to be reflected on their Quarterly Reports.
3rd Hypothesis:
It can be hypothesised that a correction in the respective industries stock prices is to be expected when the effects are reflected in company reports, alongside the said layoffs happening.
Technicals
Lets look at several benchmarks
TQQQ – 3x QQQ
TQQQ is chosen given exagerated movements with respect to non-leveraged market movements. It makes trends clearer to see.
4th Hypothesis:
Given that the price crosses below the cloud couple with the Equilibrium Oscillator showing a recovery from higher than average buying volatility – per evidenced from 2022 to 2023 – we are looking at a short-medium term price retracement if not a bear market in the tech sector given the lacklustre earnings & layoffs.
Whether or not that the price would hover at the 240 period EMA before bouncing back up or continues on the downside is remain to be indicated by the cloud’s change of colours; it is still flashing all green & a cloud crossing is yet to be reflected.
Lutfi Crypto-10 Index
The index is not defined by weightage given the huge price difference between every cryptocurrencies let alone their individual price swings. Defined by the following equation:
![\[ I = 10000 \left( \sum_{i=1}^{10} \frac{1}{C_i} \right)^{-1} \]](https://lutfi.industries/wp-content/ql-cache/quicklatex.com-6c1c9f0f61db235a1e4052197e61b019_l3.png "Rendered by QuickLaTeX.com")
where I is the index points, Ci being the individual prices of the 10 largest cryptocurrencies by market cap.
It seeks to show market sentiments through “Price” Action by equalising each token’s price. With that, it cannot reflect a certain amount of Net-Asset Value based on the “price” returned by the above mathematical function and a certain amount of ownership pertaining to said assets.
5th Hypothesis:
Similar to the indications shown on TQQQ, it is pointing to a short-term price retracements if not a short-term bear market in the Crypto space – at least for the large caps – made worst by the index crossing the 241 days EMA. For Small-Caps and smaller, Bears are still in control until Large-Caps recovers.
Also, this is a Bull-Flag in development.
Solana
6th Hypothesis:
Similar to indications shown on Lutfi Crypto-10 Index – albeit nuanced – Solana is poised for short term retracement. However per price action, retracement might be fully extended. Price is expected to remain sideways given the price uncertainty as reflected by the Equilibrium Oscillator reading zero after a recovery from higher than average buying volatility, Cloud Leading Span A reading Red whilst Cloud Leading Span A reading Green with the width – price diferrence between the 2 leading spans – being small. All of which points to sideways price action and sentimental uncertainty of Solana’s price.
Coupled that with the ongoing development of FTX Bankruptcy settlements to it’s creditors.
Conlcusion:
It all points to a short term Bear retracement. Perfect time to be buying Large-Cap Cryptos.
Hold all transactions in smaller ones.
Hold all transactions in Equities.
The ongoing devaluation of the Dollar given future Rate-Cuts due to bleeding economics & stock market performance coupled with that of BRICS will lead to increase prices of Cryptocurrencies against currencies (10).
References:
(2). https://www.morganstanley.com/ideas/japan-economic-outlook-2024-end-of-deflation
(3). https://mainichi.jp/english/articles/20240430/p2a/00m/0op/020000c
(4). https://www.federalreserve.gov/monetarypolicy/files/monetary20240320a1.pdf
(5). https://www.nytimes.com/live/2024/04/05/business/jobs-report-march-economy
(6). https://www.intel.com/content/www/us/en/newsroom/news/actions-accelerate-our-progress.html#gs.d6tazx
(7). https://techcrunch.com/2024/08/01/tech-layoffs-2024-list/
(10). Courtesy of Mikhail Arif