The Wolf Den #33 - Stop Loss Strategy, Fed Rates To 0, Podcast And More!
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Bitcoin Charts And Analysis
Bitcoin had a terrible week, which is undeniable. Global markets remain in free fall, so it's hard to be definitively bullish about any asset. We had a nice reactionary bounce from the bottom - now Bitcoin is trading sideways, likely preparing for the next major move.
I have been buying Bitcoin between $4,600 and $5,100 once again. My cost basis is roughly $4,850 on my current trade. I did this on the bull divs shown below (although I am aware of hidden bear divs appearing now). I remain cautiously optimistic that price can rise in the short term, but the most conservative approach is to sit out and wait for a clearer picture.
If you are long term bullish on Bitcoin as an INVESTOR, I don't see anything wrong with continuing to dollar cost average with money you can afford to lose. I have not changed my daily buying, and am actually enjoying these cheap prices. If Bitcoin goes to 0 (it won't) then I will move on. If it continues to have value (I believe it will), then I am willing to continue putting money into it with a long time horizon.
MONTHLY CHART
Unsurprisingly, little has changed on the monthly chart. Price is currently trading between key levels, and the month is only half way over. The blue line is the 50 EMA, which is a key line that bulls would like to see hold on the monthly chart when the candle closes.
WEEKLY CHART
It is easy to see on a clean weekly chart how important the 200 EMA is. After the major drop last week, price found support at the candle close on this red line - and price is currently trading on that line now. It is only Tuesday, with 5 days left it is hard to judge the current candle. That said, for now, a candle like this with a nice wick down would be a sign of a potential reversal. Again, this candle means nothing until Sunday at the weekly close.
The blue lines are the levels that I drew last week after the drop. They remain what I am watching on the weekly time frame. It also looks like price is in a descending broadening wedge (sadly, the huge bull flag I posted for many months failed to hold as support). There are a few massive wicks below support, but for now the candle bodies are holding above that descending black line. This is theoretically a bullish pattern that should eventually break up - but price can also follow the support line much further down before that happens.
12-HOUR CHART
There's a battle of the divs on almost every time frame. It's easily illustrated here on the 12 hour chart. I love the oversold bull divs we are seeing on most time frames - however, most have been followed by hidden bear divs that have confirmed, or are yet to confirm as seen above. when RSI gets this low it is inevitable that it will bounce, so you have to be careful playing the divs. I am cautiously optimistic, and will be watching the 12 hour and daily closes today to see how this end up.
4-HOUR CHART
Choose your bias! Bear pennant or ascending triangle? On the 4 -Hour chart we see a potential bear pennant. When viewed on a logarithmic chart (I always use log because I think percentages are more telling than fixed number), you can see that a breakdown would have a target below $1000. Disgusting, but also unlikely.
This looks more reasonable. An ascending triangle with a target in the low 8000s, at the point of breakdown with the recent crash.
Stop Loss Strategy - The Basics
Combine trailing stops with stop-loss orders to reduce risk and protect profits.
I was beginning to write up a quick primer on stop losses and then found this strategy which is a good place to start. First off, I ALMOST ALWAYS move my stop losses into profit when a trade goes my way to assure that I lock in some gains and avoid a loss on a potentially profitable trade. This is especially true in the crypto market (although legacy markets look the same now), where a sudden move in Bitcoin can quickly destroy an altcoin setup.
Most crypto exchanges do not offer a full breadth of orders - they only have simple stop market/limit and take profit orders. A "real" exchange usually has OCO orders (one cancels the others). This means that you have the luxury of both setting a stop loss and a take profit order on a position - and when one fires, the other is canceled.
Legacy exchanges also have trailing stops - a stop loss that moves up at a certain percentage or fixed amount behind price, locking in gains on the way. This was always my favorite strategy as a stock trader. Since we do not have these orders on most crypto exchanges, we are forced to do it manually. I prefer to set my trailing stops based on chart levels rather than fixed percentages, but both are viable strategies. Here's the basic steps of my trades.
Open a position (position size based on where I want my stop loss and the size of my portfolio) and set the stop loss immediately. If the exchange has OCO orders, I also set my take profits. If not, I use trading view alarms at the areas where I am interested in taking profit.
If the trade goes against me, I stop out and move on with my life.
If the trade goes my way, I start to lock in the gains.
I move my stop loss up first to my entry point to guarantee that I do not lose.
Assuming price continues to rise, I move my stop loss up just below the next key level of support on the chart. Putting your stop right at support makes it more likely that it hits on a retrace, so avoid doing this and avoid clear psychological levels. For example, if support is $10.20, I want to make sure my stop is somewhere below $10, an obvious level where traders will be watching.
I continue to move my stop up to just below each key level as price rises - eventually I will stop out well in profit when the trade finally reverses.
Stop losses in obvious areas are likely to be "swept" or "hunted." You do NOT want your stop to ever be where everyone else's are likely to be sitting. If they are, large players will understand this and use your orders to fill their positions. Remember, your stop loss is a sell order, which mean that if someone want to fill a ton of buy orders, they will push price to the area where all of those stops are sitting to trigger the sells. That is why we see SFPs, which I often discuss.
You cannot have your stop loss too tight. A common error that traders is make is setting an extremely tight stop because their position is too large. It's better to have a wider stop and smaller position size to avoid being stopped out on a normal price fluctuation or stop hunt.
A proper stop loss strategy requires a ton of experience and hours watching price action. You WILL GET STOPPED OUT OFTEN right before price reverses and goes the way you intended. It's part of trading. That said, the benefits of using a stop loss over a large sample size will far outweigh the negative.
ALWAYS USE A STOP LOSS!
Fed Slashes Benchmark Rate To 0
On Sunday, March 15, the Federal Reserve announced its second emergency rate cut in the past two weeks, slashing the benchmark federal funds rate by 1% to a target range of 0–0.25%—the lowest level since December 2015.
The announcement followed the Fed’s surprise 0.5% cut on March 3, and also included plans for a $700 billion “quantitative easing” program, through which the Federal Reserve will pump money into the economy by purchasing billions of dollars of Treasuries and mortgage securities. In a statement following the decision, the Fed said rates would remain near zero “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”
FactSet Research Systems, March 15, 2020
It’s hard to believe that just over a month ago the central bank seemed content to warm the bench, as the US economy chugged along and the stock market soared to new highs. But as the coronavirus continued to spread (it’s now hit more than 100 countries and the World Health Organization declared it a pandemic) and market volatility reached levels last seen in 2008,2 the Fed was faced with an economic and financial landscape that was dramatically different than the one they were looking at in mid-February.
Supply and demand disruptions
In the early stages of the outbreak, the main concern was supply-side shock. Businesses closed stores and factories while workers were quarantined, curtailing the availability of goods and services. But a demand shock now threatens to drag the global economy into a downward spiral as regions (and even entire countries in Italy’s case) go on lockdown, public events are postponed, and travel grinds to a halt.
Precautions have piled up: Many US cities have banned public gatherings of more than 100 people, Disney closed its theme parks, the NCAA basketball tournament was cancelled, the NBA and NHL suspended their seasons indefinitely, and Coachella, one the largest music festivals in the world, was postponed until October. Meanwhile, schools and universities have asked students to vacate campuses and shifted to online classes, turning college towns into ghost towns.
Markets in turmoil
Things seemed to reach panic levels last week as stocks plunged decisively into bear market territory, with major US indexes off more than 20% from their February highs and posting their biggest losses since 2008. Treasury yields have hovered at record lows as investors seek safety in US government bonds.
Oil price volatility triggered by a Russia–Saudi Arabia price war added fuel to an already raging fire. And on March 12, markets suffered their worst day since 1987, as investors appeared underwhelmed by the slow response from the US government on a fiscal stimulus package.
Looking ahead
While the Fed can’t stop the virus or repair the chinks in the supply chain, it’s demonstrated a willingness to fight with the tools it does have available. This is, after all, the largest cut we’ve seen in more than a decade. In addition to easing the cost of borrowing by reducing interest rates, the Fed announced it will inject $1.5 trillion into financial markets, stepping up Treasury purchases and providing liquidity to banks. And although we likely haven’t seen the end of market volatility, investors should bear in mind that, eventually, all shocks run their course.
Here are a few things to keep an eye on in the coming weeks:
Fiscal stimulus: After the Federal Reserve stepped in twice this month to loosen monetary policy, markets have been looking to the government to provide fiscal stimulus to help soften the blow, especially for hard-hit industries like tourism and hospitality. The White House has indicated it is working on a fiscal stimulus package, but a strong market response is hardly a given, especially if investors deem spending measures to be insufficient.
Economic indicators: While recent economic data has been solid—housing sales have been increasing, February jobs growth smashed expectations, and unemployment matched a 50-year low—the full impact of the virus has yet to be seen, and it could take weeks or months before a clearer picture emerges.
Corporate guidance: At least 150 publicly traded companies have issued warnings anticipating they won’t meet performance expectations for the first quarter of 2020.3 As Q1 wraps toward the end of March, we may start to have a better idea of just how much the virus has impacted top and bottom lines.
The Fed is next scheduled to meet on April 29. What happens until then is anyone’s guess, but today’s announcement at least offers a sign that actions are being taken to in an effort to offset some of the disruption.
Those are the facts.
Here are some tweets that sum up my opinion on the matter.
We are already witnessing another bailout (for better or for worse) of the wealthiest and most powerful companies and people in America. This is unlikely to help the average American much, sadly. Socialism for the rich, very little for the poor.
Altcoin Charts
I should not need to tell you that altcoins are extremely risky and probably best left alone for the foreseeable future. Some point to the fact that they are strong because they did not drop as hard as BTC (on the Bitcoin pairs), but I believe this is more likely because there are very few people left holding them than because they have tremendous strength. That said, there will always be opportunities to trade them, which is presently their main use case. I am not watching many at the moment, but here are a few that I am still interested in today.
DOGE/BTC
I have a soft spot for DOGE and always have at least a small bag when it's accumulating. This was my most profitable asset to trade in the past. Amidst the Bitcoin turmoil, DOGE has managed steady GAINS. I love this coin for that reason. It's effectively a store of value for your Bitcoin balance.
At the moment, price has broken out of 2 descending wedges and is forming a potential ascending triangle. I like it here, because you can easily release it if it breaks the local pink support.
To be clear - this is RISKY!
LINK/BTC
I am only posting this because people always request it, not because I see a trade here. I am NOT interested in LINK at this moment, but wanted to provide the chart. It seems to be flipping support to resistance (blue line) at the moment. I would personally be interested if it touched the ascending black line below as support. Maybe.
XTZ/BTC
Tezos remains somewhat bullish and is one of the few coins that seems to have positive sentiment regardless of the market as a whole. When the market is bad, if you insist on trading alts you should likely focus on those that are strong fundamentally and that have a ton of interest. This fits the bill. Price is currently sitting on support from the previous all time high, and appears to be making a bull flag. This is my main alt coin holding now, with a cost basis of 261. I am presently down a bit.
Legacy Charts And Thoughts
Markets remain in free fall this morning, although a reactionary bounce seems likely in the short term. I am still in most of my short positions, although I covered a portion of each last week on Friday before the massive move up that ended the day. I bought Clorox today, and am still very interested in Amazon - they are hiring an additional 100K employees to account for demand. I hate Airlines, Cruises, travel companies etc. Obvious.
The Dow Jones just dropped below 20K temporarily. What a time to be alive.
The chart is above is the weekly, so the candle is not closed. I am using it to illustrate the magnitude of the drops and the clear break (for now) of the 2018 low that many traders were watching for a potential bottom.
Zooming into the daily, we can see that price broke clearly below that 2018 level, then bounced all of the way up to retest it as resistance before falling again yesterday in the worst day of trading in the history of the Dow. Nothing here looks great, from a technical perspective.
SPY (and SPX not shown) are trailing the Dow a bit. As seen above, neither have reached the 2018 low. So there is still hope for those that see this as a likely place for a bounce.
VIX (volatility) closed at it's highest level in history yesterday (it wicked higher in 2008, but never closed higher). In my mind, there can be no recovery until this drops to a reasonable level. It was at 14 a few short weeks ago.
In general, this is a piece of advice that I tweeted today.
I got into Clorox this morning at $181. It just hit $200. Common sense is better than charts in a market like this.
The Wolf Of All Street Podcast W/ Mike Kimelman
Mike and I dive deep into the coronavirus crisis, the role of the government and mainstream media, preparedness vs. panic and how to be ready for what's to come. Michael is a resident of New Rochelle, one of the epicenters of the Covid-19 crisis. Both of us were sounding the alarm weeks in advance of the virus spreading to the United States. We also discuss Mike's experiences with the judicial and penal systems, going to jail for a crime he did not commit, and the failures of criminal justice in America. This is an important episode that is not to be missed.
Mike wrote an incredible primer weeks ago on Covid. This is a must read.
Newsjacking And Ransomware
Worth reading. Be careful out there, scammers are even more active when things are bad. "Any time there is a newsworthy event, cybercriminals take advantage of it to improve the quality and effectiveness of their phishing emails. They use the current newsworthy topic to grab attention of the end user and use it as bait to get them to open the malicious email. With the Coronavirus and the elections taking over the news, a rush of malicious emails are sent out that prey on the heightened emotions that these types of events create."
Coronavirus In Italy - First Hand Account
You have to listen to this. The daily is a great podcast and today's is particularly riveting. They spoke with Dr. Fabiano Di Marco, a professor at the University of Milan who is also the head of the respiratory unit of the Hospital Papa Giovanni XXIII in Bergamo, a nearby town. He is on the front line. If you want the truth of what is going on, listen NOW. Here are a few bullet point highlights.
Half of the hospital is now coronavirus cases - the hospital is large, with 1000 beds
460 nurses at home from his hospital due to sickness, burnout or quarantine
The hardest part is treating their colleagues and friends
20 deaths last Friday in his hospital due to coronavirus
They are completely out of supplies
The patients die alone, because they cannot have visitors. Often nobody informs the family because they are too busy dealing with the cases
The only way to fight the disease is to reduce the rate of infection by totally changing the lives of everyone, period. It is impossible to treat enough patients once a breakout occurs
The entire crisis at his hospital started only 3 weeks ago
The only consolation is that children are not affected
Music Corner
I was sitting in the Russian And Turkish baths in the East Village in NYC circa 2012, joking about funny band names with my friend Elan. That's where this series of projects started - Ballin' Oates was the 3rd and arguably the most popular. I never thought these would be so well-received or that they would open the doors for me to perform in stadiums across the world. Skeetwood Mac was first and went viral, so I continued creating the series.
I was always a huge Hall And Oates fan and I had access to a lot of the stems from their tracks (separated vocals, guitars etc.), but mostly I replayed each part myself with a fresh sound to change it up. I play a bit of almost every instrument, but have played the piano since I was 5. Most of it was replicated on my keyboard.
This project went insanely viral - it was everywhere from the New York Times to national newspapers and huge music blogs. John Oates himself complimented it in Billboard! Atlantic Records called me and asked for the instrumentals for Wiz Khalifa, which never materialized because of issues with the samples. This project was a defining moment in my music career.
I love this project, although it definitely takes a bit getting used to the changes in the original songs if you already love them. Check it out, let me know what you think!
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.