Mixed Signals Amongst Poor Forecasts

Newsletter of the week 28 October - 5 November. This week’s newsletter covers the US Jobs report, the Fed rate hikes, Goldman Sachs's stock market predictions, Ethereum centralization, SnP500 Price Action, US30 / DJIA Price action, and Bitcoin price action.
by Yoaquim Boom
November 7, 2022

In this week’s report

  • US Job reports and Fed rate hikes give mixed signals
  • Goldman Sachs adjusts stockmarket forecasts to new lows
  • Binance sells off all holdings of competitor FTX's FTT Token. FTX facing imminent issues.
  • Ethereum centralization concerns continue to rise. Now the network faces censorship accusations.
  • DJIA and S&P500 price analysis.
  • BTC price analysis.

US Jobs Report and Rate Hike

On Friday the 4th of November the Fed revealed US unemployment rate which was revealed to sit at 3.7% vs. 3.6% consensus and 3.5% previous.

With the jobs report and Wednesday's 75-bp rate hike, it is likely we see a fifth 75-bp rate hike in December.

For the foreseeable future caution remains the word for proper conservation and investing.

Mark Hamrick, the senior economic analyst at Bankrate, expects the pace of hiring to slow over the next year, noting that many expect the unemployment rate to edge over the 4% level.

Shortages in labor and in housing, wrote Jefferies' economist Aneta Markowska, will put a "floor" for underlying inflation at around 4%, "and we think breaking that floor will require substantial labor market weakness, which makes a recession unavoidable."

Taking into account Hamrick's expectations for the employment rate to decrease in the coming year and Markowska's statement of the unavoidable recession amidst poor labor market performance, we see a sad image for the US emerge.

Of course, US's state bleeds into the rest of the world, therefore it is a bleak image not just for the US, but for the globe, I cannot stress caution enough.

Banks, investors, and politicians are all scared, that should say enough, no one seems to have an edge in the current market.

On the other hand, some traders seem to be pricing in a smaller 30 basis point rate cut toward the end of 2023 due to the risk continued rate hikes pose to the morale of the economy.

Luckily, morale seems not to be quite as important as the integral structure of the economy to the Fed officials. So if the official's heads are on straight, we shouldn't expect a 30-bp rate hike in December.

Unfortunately, as we have seen increasingly recently it seems that anything goes in the business of politics, law, and business.

Fed Chairman Jerome Powell

Goldman Sachs Stock Forecast

According to Goldman Sachs ' latest forecast, broader market earnings will go nowhere next year.

Strategist David Kostin said S&P 500 margins had inflected downward and as a result, he is trimming the S&P EPS forecast for 2023 to 0% growth from his previously assumed 3% growth.

"Following a weak 3Q earnings season in which S&P 500 net margins declined year/year for the first time since the pandemic, we lower our EPS forecasts for 2022 (to $224 from $226), 2023 (to $224 from $234) and 2024 (to $237 from $243)," GS strategist David Kostin wrote.

Of course, as expected in these times, Kostin did note that the only exception to margin contraction is the energy sector which is getting increased attention over the last few months from many large hedge funds and investors.

Goldman Sachs

Binance vs FTX

Binance CEO Changpeng "CZ" Zhao recently announced they would be selling all of their comptetitor FTX's FTT tokens they currently hold.

CZ did not say how much FTT his firm will sell, but that as part of the cryptocurrency exchange’s exit from FTX equity last year, Binance received roughly $2.1 billion worth in the form of BUSD (Binance's stablecoin) and FTT.

Binance CEO Changpeng Zhao cited “recent revelations” as the reason for the liquidation, he further stated that the sale of the FTT tokens could take months to complete due to the size of its position and his desire not to impact market movement significantly.

CZ explained the FTT liquidation was largely for risk-management reasons,  possibly hinting at lessons learned from the fall of Terra’s Luna Classic (LUNC) and how it impacted market players.

He also added “we won’t support people who lobby against other industry players behind their backs.” Another hint at the possibility of the PVP element many crypto specialists have spoken about occurring during the Terra Luna scandal with names like FTX possibly having been involved in a planned crash of Celsius.

It seems as though Binance’s decision to liquidate the token is due to reports of a recently leaked balance sheet from Alameda Research an investment fund founded by FTX's CEO. This balance sheet alleged that the vast majority of Almeda Research funds were stuck in FTT tokens.

A deposit of nearly 23 million FTT, worth around $584 million at the time of writing was spotted on-chain being transferred from an unknown wallet to Binance, which Zhao confirmed as part of the exchange’s token offloading through a twitter post.

Ethereum Censorship Concerns

Ethereum has continuously faced criticism and theoretical attacks concerning its centralization since the merge in September.

This happened once more after 51% of Ethereum blocks were reportedly found compliant with Office of Foreign Assets Control (OFAC) standards.

Compliance with OFAC allows the United States government agency to enforce economic and trade sanctions. Previously, the OFAC agency sanctioned Tornado Cash and several Ethereum addresses.

The minting of OFAC-compliant Ethereum blocks on a daily basis has reportedly recently grown to a whopping 73%.

Some Ethereum bulls have hit back against claims the network has become prone to censorship post-Merge.

Justin Bons, Cyber Capital founder and chief investment officer,  noted that even with 50% OFAC compliance among Ethereum validators, blocks will still be produced within 30 seconds and that not a single transaction has been stopped as a result of the OFAC sanctions.

According to the Ethereum roadmap, the next roadmap period is called "The Scourge". The goal of the Scourge is to “ensure reliable and credibly neutral transaction inclusion and to avoid centralization and other protocol risks from MEV.” MEV refers to the ability of miners to include, exclude, or re-order transactions within the blocks they produce. So essentially the ability to censor.

Vitalik Buterin, the Founder of Ethereum has previously described a credibly neutral mechanism as one, which “does not discriminate for or against any specific people.”

Let's hope Buterin stays true to the Ethereum Roadmap's roots.

Dow Jones Industrial Average and S&P500

As stated this week we have seen relative strength in the big indices such as the Dow, S&P, and NASDAQ.

The pullback we spoke about last week has begun, although many indices already have found some excellent support after the big selloff.

Most indices still don't look ready for a bigger relief rally. The bulls' goal is to reach new highs on indices such as the DJIA to lead the way in the market, although the DJIA has an extremely odd and sub-optimal market structure for a continued bull run (See Fig.1).

The key long-term levels for the Dow at 26000 currently sit at the bottom of the channel. Under the right conditions, these levels will likely be reached in the next 2 months.

As for the S&P, it has found some good footing at the bottom of its channel which coincides with the 370 level. Forming an abandoned baby candle with a strong hammer bounce the day after and a strong green candle on Monday. All of these signs are good for bulls, although resistance lurks right above at the 380-390 level.

Fig. 1 4H DJIA Feb 2022 - Sep 2022 (TradingView)

Fig. 2 1D S&P 500 May 2022 - Nov 2022 (TradingView)


For bitcoin, there is currently little to say.

Bitcoin is so heavily correlated to what the broader traditional markets do that it sits in limbo and moves in tandem with the large indices.

The breakout to the upside discussed in last week's newsletter has seen decent follow-through for bulls over the past week.

Although, with key resistance sitting at 22000-22500 we are only 5% away from a possibly strong rejection (See Fig.3).

Overall I see a much higher chance on the downside for BTC than much upside, especially amongst the geo-political and economic environment.

Fig. 3 1D BTC Apr 2022 - Sep 2022 (TradingView)