The Wolf Den #28 - Peak Uncertainty
Global Markets - This Too Shall Pass, Right?
This too shall pass. These are famous words, often used when things are seemingly at their worst. But are things at their worst yet for financial markets?
Market bottoms are formed when maximum fear and panic set in. Ironically, this is usually when the people who say things like "this too shall pass" switch their tune to "holy crap, we are all screwed." I do not believe that we are there yet, but that is strictly my opinion. Talking heads on TV are still calling bottoms, saying that this is still "normal" and that the virus is "just the flu and everyone is overreacting."
The Fear & Greed index would indicate that we are close - extreme fear. But I am not sure this is an accurate gauge of the situation at this point, because we have a Black Swan event in Covid-19.
Let's look at the facts.
The VIX (CBOE Volatility Index) opened today at it's highest point since 2009. As pundits have called bottoms over the past two weeks, I have pointed out that the VIX has stayed above 30 - meaning that there's absolutely no way that the bottom could have been in with volatility so high.
Oil is $29 a barrel. We have added a price war on oil to an already unstable and dumping market, thanks to Saudi Arabia and Russia.
10 year bond yields are at .5%!!! They were already at all time lows 50% ago, above 1%.
When you combine all of these factors, we are in completely uncharted water, as stated by Jim Cramer this morning on Twitter.
I prefer common sense to analysis in situations like this. I don't need to look at a chart or follow markets to know that we are at peak uncertainty. Markets are unlikely to rise again until we have a semblance of normalcy. The coronavirus is on the rise, and the United States is woefully underprepared to deal with it. Most companies have not even begun to feel the true impact of a demand shortage.
As a trader: I remain short the SPY, APPLE, UBER and TESLA and am very happy that I was selling into the bounces in the past two weeks. I am more heavily in cash than I have ever been before.
As an investor: I remain in the bulk of my longer term positions and will continue to average into them as an investor - the shorts have been a perfect hedge to offset those losses. I actually bought a bit of Amazon today as an investment. I continue to allow my IRA to dollar cost average into SPY. I will never overthink my DCA strategy for my long term portfolio.
There will be a time when maximum fear sets in and that I will start scaling back into the market more heavily. For now, I am comfortable in my position.
Bitcoin Charts
MONTHLY CHART
There it is - $7,777, a line that we were watching months ago and has come back into play. I bought back in with a full position here, but am not convinced that we are going to bounce yet. I am maintaining tight stops. You can see that $7,777 is a key level that was broken through as resistance but never retested as support. When you zoom out, this is normal price action - you expect key levels to be retested. Remember, this is a monthly chart and it is only March 9th!
WEEKLY CHART
I said that I was watching this area for heavy buys and have followed through. We have reached the golden pocket (61.8% - 65% retrace) as well as the 70.5% retracement level, considered the OTE (Optimal Trade Entry) by institutional traders. Further, we finally got the retest of the top of the descending channel, which I have been mentioning was possible for weeks. Remove the emotions and the velocity of the dump and just look at the chart - this is a reasonable entry.
DAILY CHART
The daily chart looks decidedly bearish, although it's overdue for a bounce soon with RSI approaching oversold. As I said last week, $9,090 was a great risk/reward short for anyone who was feeling bearish because it was a retest of "the line" as resistance. Price closed a daily candle above that line and I actually bought the level on the retest. Wrong play, but my stops were tight and when it failed I exited all of my trading positions. I was sitting in cash until $7,777 today, which came faster than expected!
You can also see that price has broken down from a head and shoulders pattern. I would expect a retest of the neckline (the ascending black line) as resistance, so that is my short term target of my current trade.
That said, there is a larger potential (meaningless for now) inverse head and shoulders that could be developing. I tweeted this in February.
Now it looks like this. A bounce here would make a somewhat perfect inverse head and shoulders.
As I have been working on this newsletter, price has reached a key area of support (which is currently breaking, but not closed below). A clean close below this and I will consider exiting my positions at a small loss.
CME GAP
People love to watch CME gaps for trading cues. This time, we have a gap up to $9,060, with an unfilled gap still remaining in the $11,000s. These gaps have actually filled within a week roughly 80% of the time on the CME daily chart. Definitely worth watching since everyone else is.
FEAR & GREED
The Bitcoin Fear & Greed index has also reached "extreme fear." We have seen the number lower, but this is definitely low enough for a potential bounce based on past situations.
Bitcoin Thoughts
The store of value and digital gold arguments for Bitcoin have taken a major beating over the past few weeks and days. It is somewhat clear that people do not rush to risky assets in a global market down turn. Selling has been relatively intense, with little sign yet that it is stopping. But who is selling?
Retail sellers do not dump 100K orders on the market by the second! The trail of bread crumbs does not lead to average investors panic selling Bitcoin - it indicates that we are witnessing yet another whale pump and dump. This is coordinated selling in huge quantities, timed with global events to amplify the effects and get retail on board. That's my take, so pardon the tin hat. I discussed this theory at length when Bitcoin pumped on news of a likely war with Iran.
That said, Bitcoin is a risky asset, and the average person is not going to buy a riskier asset when they are losing money. Interest is low. For now, Bitcoin likely needs to weather the storm, remain somewhat uncorrelated and stabilize. The next few days and weeks will be very interesting.
The Wolf Of All Streets Podcast
The first 2 episodes of The Wolf Of All Streets Podcast are dropping TOMORROW AT 7 AM EST!
The first 2 guests are Catherine Coley (@cryptocoley), CEO of @BinanceAmerica and Chris Bukowski (@chrisjbukowski), blockchain enthusiast and Bachelor franchise superstar. I CAN'T WAIT! It has been a ton of work to get this project going and ready for launch. I hope you listen and enjoy it!
HBAR Trade
I took a shot at HBAR on support of the ascending channel. It goes without saying that trading alts right now is risky, but this is easy to cut if the channel breaks down so the risk is minimized. I really like this here if things bounce. There is also a nice little bullish divergence with RSI looking likely on the hourly.
The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor.