The Nasdaq 100 rallied at the cash open as solid corporate earnings from chipmaker Nvidia bolstered positive sentiment, but optimism was short-lived as sellers quickly returned to fade the strength in the equity space amid Fed jitters. In late afternoon-trading, the tech index, however, resumed its advance, but wild intraday fluctuations suggest traders are reluctant to maintain heavy exposure ahead of Friday’s U.S. PCE data. Elevated volatility and unpredictable market swings undermined cryptocurrencies, causing Bitcoin (BTC/USD) to erase its morning advance and to slide into negative territory for the third session in a row, a move that reinforces the argument that stocks and digital assets are becoming increasingly more correlated, providing little diversification benefit. In any case, focusing on Bitcoin, the token has clearly run out of upside momentum following its solid performance in the early stages of 2023. In fact, prices have started to pull back after failing to break above $25,200, an area that has acted as a strong resistance in August last year. While the recent pullback could be a temporary pause before the next leg higher, more technical evidence is needed to confirm that the worst in the crypto space is over and that Bitcoin could extend its near-term recovery.
BITCOIN TECHNICAL CHART
One signal that could point to a bullish continuation would be a clean and decisive topside breach of the $25,200 ceiling, especially if the move is accompanied by above-average volume. Such a breakout could attract new buyers to the market, at least in theory, setting the stage for a run towards the psychological $28,000 level. On the other hand, if BTC/USD deepens its descent, traders should keep a close eye on trendline support crossing $23,000. If this floor is taken out, selling pressure could accelerate, creating the right conditions for a bearish slump towards $21,500, a pivotal support established by the 38.2% Fibonacci retracement of the November 2022/February 2023 rally. With January Price Consumption Expenditure data on tap on Friday morning, volatility could spike heading into the weekend, causing sharp swings across assets. In terms of expectations, core PCE, the Fed’s favorite inflation indicator, is seen easing to 4.3% y-o-y from 4.4% y-o-y in December, a small but welcome directional improvement. Recent economic data have shown that inflationary pressures remain sticky amid tight labor markets and resilient demand, so it is likely core PCE could surprise to the upside. This scenario may spark a risk-off move on Wall Street, weighing on stocks as well as cryptocurrencies.