A quiet data week was driven by two macro forces instead. Renewed Iran tensions on a rumoured large scale offensive sent Brent back to 117 dollars, close to the highs from the start of the war in March, before Trump announced no immediate offensive was coming. Separately, renewed AI bubble fears knocked Nvidia 8 percent and Meta 9 percent, with Nasdaq down 2 percent on the week after an intraweek selloff of 3.5 to 4 percent. Bitcoin started well, testing up to 84,800, then put in five consecutive daily red candles, which is rare, for a 5.4 percent decline and a low of 79,200 over the weekend as 80,000 broke. It now sits on trend line support between 79,500 and 78,500. Below that, 75,500 is the level Jesse identifies as the pivot that would undo the bull market base built since the summer lows. Liquidity is constrained at 3.06 with negative velocity, which is a possible explanation for why Bitcoin is trading heavy.
Data: Quiet and Second Tier
Last week was a pretty quiet data week. Housing starts came out a little on the weak side at 1.22 million against 1.3 million expected. S&P services PMI printed 57.9 against 58 expected and S&P manufacturing PMI 56 against 55.5 expected. The Michigan consumer sentiment index came in at 48 against 46.3 expected, with the five year inflation expectations subcomponent at 3.5 percent, in line with expectations but up 0.1 on the previous reading of 3.4. All of it was second tier, and none of it particularly moved the market or Fed rate expectations.
| Indicator | Actual | Expected | Verdict |
|---|---|---|---|
| Housing starts | 1.22m | 1.3m | A little weak |
| S&P services PMI | 57.9 | 58.0 | In line |
| S&P manufacturing PMI | 56.0 | 55.5 | Slight beat |
| Michigan consumer sentiment | 48.0 | 46.3 | Beat |
| 5 year inflation expectations | 3.5% | 3.5% (3.4% last) | In line, up 0.1 |
Iran: A Spike to 117, Then the Usual Playbook
Renewed tensions in Iran came with a rumour that Trump was set to launch a new large scale offensive. That sent Brent all the way back to 117 dollars, close to the highs from the start of the war in March and the level at which the market really starts to take note. Then, as is normally the playbook, Trump announced that no offensive was coming and Brent dipped back below 114. Over the weekend Trump commented that high gas prices are a small price to pay to weaken Iran, and crude is currently back above 115 at 115.50.
The current US plan looks like the long game: increased economic pressure on Iran rather than military escalation. The blockade is in place and the Iranian currency is in slow collapse, down around 40 percent since the start of the war. The read is that economic stress is being increased to bring the Iranians to the negotiating table.
AI Bubble Fears Return
The other macro driver was a return of AI bubble fears. Nvidia was off 8 percent and Meta off 9 percent. Nasdaq as a whole finished down about 2 percent on the week at 28,900, though that masked an intraweek selloff of roughly 3.6 percent. The S&P closed the week down 1 percent at 7,600.
Bitcoin: Five Consecutive Red Candles
Bitcoin was overall heavy on the week. It started trading well, testing the upside and reaching 84,800. Then, with pressure on stocks and oil going bid, it printed five consecutive daily red candles, which is pretty rare. That produced a 5.4 percent selloff over the course of the week and a low of 79,200 over the weekend as the 80,000 level broke.
It is currently sitting on pretty strong support between 79,500 and 78,500, where there is trend line support. Below that the next level is 75,500, and that is the one that matters: it would be the pivot to undo the bull market base that has been forming since the summer lows. If 75,500 breaks, things probably would not look good and the market would likely head back towards the range lows.
Technicals: What It Takes to Repair It
On the topside, 81,400 is the short term level, and reclaiming it would get price back into the stability and congestion zone. Above that, 85,000 and then 87,500 are the levels to break for the next leg of the bull market, which should push toward the 95,000 to 98,000 range.
| BTC level | Significance |
|---|---|
| 95,000 to 98,000 | Target for the next leg once 87,500 clears |
| 87,500 | Break level for the next leg of the bull market |
| 85,000 | First level above the congestion zone |
| 84,800 | Last week’s high |
| 81,400 | Short term level; back into the stability zone |
| 79,500 to 78,500 | Current support; trend line |
| 79,200 | Weekend low |
| 75,500 | Pivot; a break undoes the bull market base |
ETF Flows: Positive on the Week, Mirroring Spot
ETFs were positive 442 million dollars over the course of the week, and that was despite a massive outflow on Thursday alone of negative 635 million. The flows pretty much mirrored spot: inflows over the first half of the week and big outflows in the second half as the market sold off. The implication is that the Bitcoin price moves were largely spot driven.
Options: The Premium Moves Back to the Downside
DVol is at 38, up a little on the week. Five delta puts are at 44 percent and five delta calls at 38 percent, so the premium is back on the downside. That is not unexpected given Bitcoin is trading heavy and flirting with trend line support. Implied volatility is back above realised, trading around an 8 point spread all week, which is a reasonably healthy premium.
| Volatility measure | Level | Note |
|---|---|---|
| DVol | 38 | Up a little on the week |
| 5 delta puts | 44% | Premium back on the downside |
| 5 delta calls | 38% | 6 points below the put wing |
| Implied over realised | ~8 points | Held all week; reasonably healthy |
Liquidity: Constrained, With Negative Velocity
Hilbert’s global liquidity index is at 3.06, a constrained liquidity reading. The six factor model Z score is at plus 0.16, a change of negative 0.47 on the week, which gives a negative liquidity velocity. Jesse ties that directly to the price action: it mirrors the Bitcoin selloff and explains why Bitcoin is trading heavy, with constrained liquidity and free cash being drained out of the system.
That’s a negative liquidity velocity, and again mirroring the Bitcoin selloff we’ve had. Bitcoin will trade heavy when we have constrained liquidity and free cash being drained out of the system.
This Week: A Hawkish Hold on Wednesday
It is quite a heavy data week. Durable goods come on Tuesday, then the big one is the Fed decision on Wednesday, with markets pricing an 87 percent chance of no change. Jesse thinks it would be quite shocking if the Fed did anything other than sit on its hands this month, and expects a hawkish hold, because the market is still priced for a hike in December and the Fed will definitely not want to talk the market out of that given high inflation readings and strong growth.
His reasoning on why they will not surprise is the other side of the same coin. With the market pricing so close to unchanged, and wobbles starting in equity markets and risk markets generally, he would be very surprised if the Fed shocked the market with a hike that is neither immediately required nor urgent when it can go in December instead. Thursday brings PCE and a GDP reading, and Friday brings Chicago PMI.
In DeFi, USDe yields are back above 5 percent at 5.1, with TVL at 4.56 billion dollars.
