After a muted month of volatility in September, Uptober is living up to its name and putting in the work for strong green candles. The real stress tests will come with the release of US job report and inflation rates.
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US yield curve remains deeply inverted
There has been a palpable shift in sentiment across the crypto markets. This is on the back of relative value and how well they have held up despite FX market chaos, bond routs and equities selling off. We're definitely in the bullish camp, as it doesn't take us long to flip into giga bulls. However, the one chart that gives us a reason to be cautious would be the yield curve inversion. In previous Morning Note's we have highlighted this concern and while we're not wanting to appear as doomers, it's a fact that deep yield curve inversions have proceeded savage recessions. Can this time be different? Sure, we can be calling chicken little and look a little silly but it's better to be cautious and hop into a bull trend confirmation rather than trying to call the bottom and catch knives.
Drawdowns are inevitable
The 2018 bear market was certainly a savage one, it caused almost every single tourist that jumped aboard the run up to leave. Not only was the % drawdown from peak to trough pretty mind melting (approx. 87%), but the time of the drawdown from high to low had lasted 364 days. If we were to extrapolate this forward to our current bear market, our bear market could come to an end in early Nov '22. Now a lot of pundits are screaming for further price based capitulation to get the same avg. 80% drawdown Bitcoin has experienced in previous bear markets. Those expectations should be tempered though, as the previous Bitcoin bull market had taken it from a relatively obscure investment and asset class straight into the limelight of the global financial markets. We're in the big leagues now and with it comes a slight reduction in overall volatility.
BTC/USD key levels
Our key level of $20,554 USD has provided the expected resistance highlighted in the previous Morning Note. For any rally to continue, we need to see a break and close above this level on the daily chart. A break above $20,554 and we will quickly shoot towards $21,761 as our next level of overhead resistance. To the downside, we need to watch the magnet that is $19,560, if we retest and close below this pivotal level, then watch out below. A retest of $18,549 can occur if we close below the magnet.
ETH/USD key levels
Ethereum continues to flirt with our key level of $1,333 USD. The first major level of overhead resistance is $1,400, should we break this level then expect a retest of the the 2018 high of $1,472. The downside scenario is quite clear, if we lose $1,333 then we can easily teleport towards $1,241. For the time being ETH will follow what Bitcoin does and there will be likely underperformance on the ETH/BTC pairing.
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