Macro Analysis

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In recent weeks global markets have experienced a real storm on several fronts. It is worth noting that due to the stress the fixed income markets are undergoing, the metrics are off any historical and statistical reading.

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The market is anxiously awaiting signs of easing inflationary pressures that have not been forthcoming, the Fed's rate hike cycle is the most aggressive in recent memory.

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All this has caused misalignments and movements in all curves. Something never seen since the GFC (great financial crisis).

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Data associated with economic activity are beginning to show a severe deterioration, not only in Europe but also in the rest of the world.

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Germany's trade balance is the chart of the week, at a multi-decade low, showing the terrible erosion and destruction of economic activity in the locomotive of Europe.

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The US is not left out of the macroeconomic storm, ISM manufacturing and services are beginning to enter the contractionary zone (below 50).

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We see the US labor market remaining strong, which gives the FED room to carry out its aggressive "hawkish" anti-inflation plan. The market experienced sharp declines last Friday following the release of the nonfarm payrolls. The Fed's famous pivot narrative is not going to come with this employment data.

In our opinion it will come but not when the market demands it, if the conflict in Ukraine were to reach scale it would give wings to the market in the short term, which could interpret that the monetary authorities are forced to give oxygen to the market and even direct intervention, as the Bank of Japan and the Bank of England have done.

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For this week we have the most sensitive data for the markets: PPI (Wednesday 12) and CPI USA (Thursday 13) corresponding to September, the FED minutes, numerous interventions of members of the FED/BCE and finally 90,000 million of Treasury notes and US bonds issuance.

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Crypto Assets

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If we talk about Bitcoin, the overall situation shows a bearish imbalance attempt of the large upper value area, however in the last few weeks considerable volume has been generating at the $20,000 levels which has prevented further bearish continuations for the time being.

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The technical situation in the short term clearly shows little buying momentum, the marked cumulative structure has presented two bullish continuation failures, with an aggressive return to the value, where demand reacted timidly. As long as the market fails to consolidate above $20,500 we will be very cautious with any bullish approach. Demand is weak and this is evidenced by the price dynamics around the value areas, however it is remarkable the lack of aggressive sellers in the face of the appreciable weakness and even more so considering the deep sell off across the global investment spectrum that occurred during the last 3 weeks.

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The Coinbase and Binance order book in bitcoin spot remains heavily protected with a large block of limit orders underneath. Such a situation is analogous to the summer of 2021, where the market made a floor after the sell off from all-time highs.

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It is worth noting the slight decoupling that Bitcoin has shown during the last few weeks, which, as we have mentioned before, have been some of the busiest in the last decade.

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On-chain Metrics

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Throughout our newsletters we will be gradually unraveling the valuable information provided by on-chain metrics, objective and high value-added information that opens up a new dimension of analysis.

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This time we will talk about bitcoin reserves in bitcoin wallets sorted by size:

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Changing the market sentiment will come with the corresponding whales (1,000-10,000 BTC), leaving aside the next step: 10,000 to 100,000 BTC as we assume that these belong to exchanges and Microstrategy.

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From May 2021 to August 2021, when the market found the floor after the fall from historical highs, it was clearly observed how these entities were accumulating at a fast pace, the subsequent result we already know, breaking the previous historical high reaching $69,000.

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As of today, we find no signs of accumulation from these entities, with the exception of the last few days. We need to see a trend change in these metrics to start thinking about any solid and realistic bullish scenario.

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Other on-chain long longs metrics indicate, under comparative exercise, that the floor is in process. The fourth cut between the short-term holder and long-term holder cost basis has occurred, which has been one of the market floor signals previously.

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At the same time, the price remains close to its 200-weighted average and the investor cost basis line.

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Derivatives:

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The market has been in range ($17,000-$25,000) since mid-June, in the last few days there has been a notable increase in open interest, which could indicate some anxiety from market participants about an imminent break out (break point) and they are looking to leverage with futures. In our opinion, Bitcoin's organic movements have to come from the hand of the spot and not from the hand of derivatives.

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The leverage ratio again shows the anxiety and nervousness mentioned above and makes us cautious about a possible event of liquidations of over-leveraged positions. Organic demand should enter spot and not an overheated derivatives market.  

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The skew is away from extreme fear readings, where the market is requesting OTM puts.

The options market does not seem to demand protection against eventual falls and remains on the sidelines of the turbulence of the rest of the markets. The skew is not in favor of the calls but the fear recedes as they lose positive slope.

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Classic Market

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In the SPY(Standard and Poor's Depository Receipts) we closed the week on severe weakness, after sweeping the June lows the market leaves a bullish continuation failure below $375, danger!

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If we look at the SPY in detail using a shorter time frame, we see a clear bullish continuation failure and return to value.

This is a clear scenario of "salvage" or redistribution and total takeover by the sellers.

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The gamma profile of the market is tremendously bearish with most of the notional between $350-$360. The max negative gamma level is at $346, so it has room to run to the downside and with the market makers (MM) pushing in favor as the market is in negative gamma.

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However, caution! we are still in a market of "extremes", the distance to the GEX flip is again at highs, showing the over positioning to the downside. At the same time, the IV (implied volatility) is trading at very high and previously reactive levels.

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With all this, the price dynamics are in command and show a clear weakness in demand and strong selling initiative, however the options metrics show favorable readings for "sudden" and forceful short squeezes in the face of small twists in the general sentiment. We will be paying close attention to the US CPI data this Thursday, as it will be the main catalyst for movement in all financial assets.