chart

Perspective, please!

/ Bill Sindel / Leave a comment

I have been finding it extremely difficult to come up with topics that will not lead to people (on one side or the other or both) flaming me for taking a side politically in a blog that is intended to promote thought without inserting a political opinion. But then, as so often happens over the last 10 years, crypto comes flying in with something to write about. The gift that keeps on giving. Here goes:

One on side we have; Crypto is over, It’s crash and burn time, We warned you it was just like tulips, yada, yada, yada…again.

On the other side we have the usual crypto refrain; ‘When in doubt, Zoom Out.’ The phrase is a way of saying a longer-term view will change your opinion what you’re seeing in the short term. This idea comes from, yes folks, charts!

Obviously, anyone who has even casually paid attention to my blog knows I’m not in the first camp. To some extent, I’m actually not in the second one either (Surprise!), though overall those are definitely my peeps.

So, let’s explore both sides of the current arguments. First, crypto is dead. As I have been doing since Bitcoin dropped from around $1200 in 2013 to under $200 in 2015, I’m going to declare crypto is not dead. I’m not even sure it’s sick. It’s actually starting to try and grow up. How can I say that after this current sell-off from almost $110,000 to under $80,000 in mere weeks?

I still look at crypto as evolution of a blockchain, as I have when I was first introduced to bitcoin in 2012. In that light, it’s not going away. Meme(shit) coins? They can go away. The opinion out of Washington this week that shitcoins are collectibles actually makes some sense to me. Kind of like Pokémon. I might have to start actually referring to them as meme coins now. The hard part is determining when a meme coin essentially gains utilitarian value of some sort and is no longer a shit, I mean meme coin. But this is a meaningful step forward, so I’ll take it.

Now this sell-off? C’mon folks, no market goes straight up without ever looking back, rocket emoji’s or no rocket emoji’s. 🚀 Have you not been paying attention to this space for the last 50 something blogs I’ve written? Market pullbacks, while at times violent, are not only healthy but actually necessary. That’s how you avoid the tulip thing. By getting rid of the tag-along lemmings and giving new buyers a chance to play.

Look at anything that you consider a ‘bullish’ chart. There were stumbles, even some falls along the way. Yet, stuff still has managed to set all time-highs recently. No, not crypto silly, the S&P, the Dow, etc.…you know the stuff my mom refers to as ‘the market.’ The thing is we get conditioned to things going up, it’s kind of the idea behind the stock market, pensions, 401k’s etc. When things do go down, it’s often much faster than they go up; and that’s not just crypto. While we can talk about weak holders, stop orders, and the like, I generally just chalk it up to gravity at work.

Ok, so now we’ve covered the ‘Crypto is Dead’ piece to a decent extent to find it acts like almost any market. Don’t believe that the drops are as violent in other markets as they are in crypto? Have a look at commodity Futures sometime. Pick a future, any future. Metals? Look at Silver. Energy? Look at Natural Gas. Not convinced? The price of Frozen Concentrated Orange Juice, the Futures of Trading Places fame, declined by 60% over the last 2 months! We’ve been drinking OJ for a long time. The ups and downs of the Futures market may ebb and flow, and the amount we drink may do the same, but society doesn’t as a whole doesn’t stop drinking orange juice altogether when prices go up. Some people do, and this in turn gives the market some new breathing room.

So now back to crypto crowd and their mantra of When in Doubt, Zoom Out. This recent sell off is a great time to actually see what this looks like!

Well, that’s pretty ugly. That’s a daily Bitcoin chart for the last couple of months. It may even be bordering on f’ugly (you can figure out what that means…). If we do the math, Bitcoin dropped 28.5% in a little over 5 weeks. Orange Juice does that without breaking a sweat as we just learned. Is this the bottom for Bitcoin? If it is, my timing is more luck than anything else. But what it isn’t is the end of crypto. Let’s do that Zoom Out thing, shall we?

Almost 10 years of Bitcoin history (monthly chart candles). We can definitely look at it and say ‘We’ve seen this movie before.’ One thing that jumps out, to a chart nerd like me anyway, is that the most recent big green up candle in November had a bigger range up than the just finished February down candle. Maybe gravity and physics are not the most powerful forces here. Nope, just lemmings and human nature and money. Piling into a trade then gate crashing the exits to get out. Notice I used the word trade in that sentence, not investment. And that’s why I’m not convinced this is the end, even if there is not, I’m sure, a shortage of people licking their wounds from this last drop.

Here we are looking at the same monthly Bitcoin chart built on a logarithmic ‘log’ scale vs the previous linear scale, which gives an even different and to many, a better perspective. Given the history, this move actually looks rather tame. We could add lots of Technical Analysis derivative indicators to the chart to help expound on the why’s and when’s of the moves above, but there’s really not much need. It goes up. Not rocket ship up, but still up.

I will also point out that there are many that will find a buying opportunity somewhere. It may be lower, it may be higher, but those opportunities will be plentiful, though they are rarely easy. This is what sustains markets, has helped sustain crypto for more than the time I’ve been involved even, and will continue to keep the crypto markets, as well as others like Frozen Concentrated OJ Futures, healthy.

In case you’re new around here, let me reiterate my ‘opinion.’ Same as it was when I was first introduced to Bitcoin in 2012. I’m bullish. Back then, it wasn’t due to charts – didn’t have good data, but rather fundamentals. And that also has not changed. For while I do focus on charts and technical analysis, there is IMHO, sound fundamental reasoning behind cryptocurrencies. No, it does not center around illicit activities like Silk Road (one of those down moves on the chart) if that’s what you were thinking. Actually, different fundamentals, and different illicit activities that include Al Capone as an example. As I look back, I’m astonished that I haven’t covered that part yet, though I did touch on it briefly here.

I think I’ll just let you ponder the connection until the next time…

Which Way Is Up?

/ Bill Sindel / 1 Comment

In case you haven’t heard there’s an election in the US this week. At the top of the list is the contest for President. You may end up reading this after Election Day, but few believe we’ll be sure of the actual outcome on that day, so I decided this isn’t too late to write…and maybe make a prediction.

I’ve spent the last few years writing this blog and attempting to stay out of the political discussion. As a Political Science major, it’s amazing I can be this exhausted, and this disappointed. Disappointed in the way this has turned into Us vs. Them, no matter which side of the us and the them you’re on. So I’ve been trying to think of what to write about without blatantly espousing for one side or the other. What did I come up with? Well, market analysis, of course.

I look at charts. I try to keep emotion out, except when I can’t take it anymore and I trade on emotion. When I do that, I generally accept that I’ll be wrong. So let’s discuss the chart, briefly, and then go into the why’s. The chart of the S&P, NASDAQ, or [insert broad equity index of choice here] says buy the dips. So on an objective basis, that’s what we should be doing. But what about the post-election moves? Well, rules are rules, so let’s see how to fit this into the current narratives around what happens after the election results.

Mini S&P Futures – Monthly Chart

If we read the above, after the election the charts say the probability is markets go up. But we’ve spent 6 months hearing how if one candidate wins it goes up, if the other wins it goes down. With a trend this advanced, it’s easy to discuss reasons it could go down based on who wins. But I’ve learned too many lessons the hard way. Those lessons usually are the results of breaking so many of my own Technical Analysis tenets.

So let’s try and actually find the narrative that makes this bullish opinion work, from both sides. We can start with either side. Let’s start with the incumbent, Donald Trump. It’s been said by many that a Trump victory is what’s needed for the equity markets to continue this run. We can see where this comes from, as much of the rally is supported by banks, trading firms, wealthy individuals, and family offices with money that needs to be put to work. And while many have stashed money in bond markets over the years for safe returns, rates are too low across the board to really make this a worthwhile position to take on a risk reward basis. Even rich folks want to return more than 0% to 3% based on the risk of the assets backing the bonds, from the US government to smaller municipalities to corporations. So this money is funneled to equities and it feeds on itself…like so many rallies do.

This audience is traditionally better served by having a Republican administration driving the bus. So based on that, it’s easy to see why there is a valid argument to be made for the continuation of the current leadership. Are there counter arguments? Of course…a lot of money has been printed recently. Not the usual Republican way of doing things, but hey, whatever works. There’s not a lot of evidence that the practice of feeding corporations and the wealthy will change with a re-election, so it’s easy to see how a Trump victory leads to a continuation of this ride higher. Anything else is pulling the rug out from under.

On the other side is Joe Biden, the challenger. Many narratives say that a Democrat in the White House will lead to a large sell-off in these markets. Now history doesn’t necessarily support this, as some of the largest bull runs have come with Democrats driving the same bus. Yet it’s an easy argument to make. Taking aim at corporations and rich folks by taxing all those winnings at a higher rate, supposedly printing more money than the other side, these are the things that drive arguments for a bear market. But if you’re making money, well it’s not quite as painful to pay higher taxes. Think about it…would you rather (as the kids game goes) pay $40 out of $100 in profits, or pay $10 on $50? Well looking at percentages only, it’s easy to say the latter. But if I’m only able to make $50 vs making $100, personally I’d rather have the $60 in my pocket post taxes than $40. That’s my math.

But how does the market keep going up under Biden. Well, if we can conclude that much of what has kept these markets afloat is an expansion of the monetary base, it’s pretty fair to say that a Biden administration will pump more money into the economy. It’s how the promise to support those suffering the most financially in a pandemic gets translated into more dollars floating around. But will those who need the money most actually be buying stocks with payouts? Probably not. Rent, food, clothes and all that. But it would be naïve to expect that the only beneficiaries of a monetary policy designed overall to help those in need will be confined to that audience. And we know that interest rates won’t fly higher in this scenario, so we’re back to the place for this money being equities. Yup, bullish.

Will it play out this way? Maybe not. Maybe the second Trump administration doesn’t really keep printing money. Maybe they do find their way back to Republican roots of tighter monetary policy. Maybe the rally that has, for the most part been confined to a small selection of stocks within the indices does run out of steam with a lack of new money.

And on the Biden side? Also not guaranteed, but it’s difficult to find a scenario where a Democrat led administration doesn’t keep the printers going and interest rates low. Now granted it’s difficult to imagine getting a mortgage refinance at less than the 2.75% I just got, but we still have positive interest rates. They could always go negative on a federal level, a la Japan which means I could refinance even lower next year. Negative rates are not something I’m in favor of, didn’t work for Japan, but that doesn’t mean it can’t happen.

So where does this leave us? Well, this blog is titled The Story Behind the Picture. This is what I see as ways for the bull market to keep going. Will I be right? That I don’t know. What I do know is that I’m not getting short again until the chart tells me to. Cheaper that way. Sometimes no trade is the best trade.

Please go vote! It’s your responsibility. And if you don’t, and your candidate of choice loses, please don’t bitch about it. You only earn that right when you take care of your responsibilities.