The Penalyst: Market Overview & Outlook

TRADFI
FX
TRADING1
INVESTING
By Timothy Hellberg

The low liquidity weeks of Christmas, New Year, and January are behind us, and as such, The Penalyst is back crunching numbers and reading charts.

A new year is on the way, and the team at Penning AIF sees a plethora of opportunities coming our way. Our first investment case for the year has already materialized and with it a currently improving sentiment for the digital asset space.

Will it be fortified, or will Q1 economic data once again flip the market on its head and push it lower?

As we headed into the new year, the first investment case for Penning AIF was produced. A case based on two pair trades, one Alpha driven and one Beta driven. For Alpha, we were looking to go long Lido (LDO) against Bitcoin (BTC), a pair trade that we expected to materialize over the next 3-6 months, but during the first weeks of 2023, we already saw the trade generating a +150% move. Now that’s some New Years' fireworks to the Penning teams liking!

For the Beta exposure, we were looking to go long a paired ratio trade, Ethereum (ETH) against Bitcoin (BTC) a trade that is currently well in the green and still going.

Want to learn more about our reasoning behind the investment case? Send us an email at h@penning.dk and we will happily provide you with the full case. We are also working on a new part of the website where you in the future will be able to download our old cases to review.

But, that’s in the past. We dive into the charts to get an idea of what has happened, where we are, and where we might be going.

BITCOIN (BTCUSD)

As mentioned, we are seeing some improvement in key metrics for example ETHBTC ratio going up, suggesting the market is more alpha driven and willing to take on risk. BTC prices have held up nicely over the holidays and subsequently broke out of the consolidation to the upside, gaining some bullish momentum.

Price behaved as expected and highlighted in the last update, moving sideways around the consolidation zone over the holidays with some minor breakouts in both directions not materializing into anything bigger.

On the technical side, we still have the same two resistance levels as previously highlighted to work against, and prices need to break and close above with conviction for the larger picture to turn bullish.

Heading into 2023, all eyes will be on inflation data and comments from the FED, trying to see if we get more hikes or less, and what the monetary policy will be. We have signs of a recession brewing, so Q1 will be data-driven more than ever.

US DOLLAR INDEX

The US dollar broke out of a smaller wedge and proceeded to consolidate pretty much to the dot in line with my highlighted expected consolidation from 2022’s last update.

As liquidity is coming back to the market now, we are seeing a widening of that consolidation, and not something to be concluded as a breakout in either direction. This is perfectly normal this time of year.

I would expect the US dollar to do well, at least for H1 or somewhere along those lines for 2023. That’s not to say it will weigh too much on digital assets, but rather doing mildly well in a risk-off environment. As such, I would be careful trading any digital assets paired with the USD and would rather look for idiosyncratic trades.

However, IF and WHEN we get the pivot in monetary policy from the FED, the USD could very well become a good pairing horse again.

NASDAQ100

In the last update I did for 2022, I highlighted potential consolidation patterns for the NASDAQ over the holidays, with the more bearish one being my preferred case after having brokered the structure inside the current downtrend.

As highlighted on this chart, one could wonder if we whipped out the old crystal ball again, as the price moved almost exactly to the dot as my suggested pattern (white dots).

Now, the price is trying to make a run for it to the upside, with the 20-day Moving Average coming into play as the first level of resistance. A break here and we could see an accelerated move to the upside.

To the downside, we need to see a clear break of previous consolidation lows for a continued move toward the lower regions of the range in the current downtrend.

Once again, such moves would have to be triggered by a deterioration in sentiment, likely as a result of economic data souring and/or comments from the FED.

2023 OUTLOOK COMMENTS

At the moment, we have a divergence between markets and central banks. This divergence is setting us up for the opportunity of a lifetime, as when either sentiment prevails or truly becomes confirmed, expect some serious moves across markets.

So, my game plan is heading into Q1 and Q2 expecting a cautious to negative risk sentiment, once again not providing any significant growth for digital assets. However, short opportunities will be plentiful, and pair trades continue to be attractive.

Into Q3 and Q4, IF we are going to get a pivot, this is when I expect it to materialize and with cross-asset markets all dying for some positive news and developments, I expect the reaction to such pivot to be violent, similar to the v-shaped recovery we saw in equity markets during the pandemic. And when that materializes, the complete investment methodology changes, and I will look to add into more value growth positions too.

Once again, the name of the game remains diversification and adaptation. Two core values of Penning AIFs investment strategy and something that will make 2023 a high-yielding year.

*Disclaimer: This article is not financial or investment advice, nor should it be perceived as such. Penning Group and the author (Timothy Hellberg) shall not be held accountable for any misinterpreted information by the reader. If you are interested in learning more about investing in the DeFi space, please get in touch with us.

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