US stocks have started to drop as concerns about the pandemic are rising and Bitcoin (BTC) price has pulled back below $18,800 on Dec. 8 after struggling to break resistance level at $19,500.
COVID-19 cases in the US and Europe are continuously rising despite strict restrictions.
Since Oct. 30, the Dow Jones Industrial Average increased by 13.46% within six weeks. Other major U.S. stock market indices, like the S&P 500, similarly increased by around 13%.
Following a strong six-week rally, the calls for a stock market correction are emerging. Some technical indicators pinpoint an overheating equities market, which could negatively affect alternative assets such as Bitcoin in the short term.
Macro uncertainty coincides with BTC chart technicals
Market analysts say that BTC is currently battling a critical level that could dictate its short-term price trend.
Analysts point toward the $19,500 to $19,600 range as the important resistance zone in the foreseeable future. Above it, BTC has the potential to break through a new all-time high and go on its rally.
If BTC convincingly breaks down below it, investors expect anywhere between $14,000 to $18,000 as the support range.
The timing of the increasing uncertainty in the BTC market is noteworthy as it coincides with an ambivalent U.S. stock market.
For the past few weeks, U.S. stocks have rallied, buoying the sentiment for risk-on assets. But the recent drop of the stocks in the after-hours trading session shows investors are turning cautious and it can affect Bitcoin price. Holger Zschaepitz, a market analyst at Welt, noted:
“Global stocks under pressure as pandemic concerns outweigh stimulus hopes. S&P 500 Futures dip amid fears of restrictions as infections climb. Bonds held on to Mon’s gains w/US 10y yields at 0.93%. Dollar steady w/Euro at $1.2120. Gold trades higher at $1868. #Bitcoin at $19.1k.”
The major source of fear and uncertainty stems from whether an additional monetary stimulus package is coming in the short term. Despite the optimism around Covid-19 vaccines, the second wave of lockdowns and economic restrictions in both the U.S. and Europe is putting pressure on market sentiment.
BTC’s correlation with the S&P 500 and gold has been decreasing since October. Nevertheless, a fall in equity markets will likely also see a correction in BTC and gold prices, at least initially, as was faced in March.
As Cointelegraph reported, another variable is the lackluster volume in the BTC market amid record levels of “extreme greed,” based on the Crypto Fear and Greed Index. The daily trading volume of BTC has been in a downtrend in comparison to previous weeks, which also demonstrates an elevated level of caution in the market.
JPMorgan’s optimistic viewpoint is a variable
Although the short-term sentiment around risk-on assets is dwindling, JPMorgan believes the market is still in the middle of a bullish trend.
JPMorgan strategists thinks that the “long equities” trade is overcrowded and the possibility of a January correction exists. However, the strategists highlighted that any correction in the stock market would be an opportunity to purchase. They said:
“Thus any equity correction in the near term would represent a buying opportunity as in our opinion we are only in the middle of the current bull market.”