While Bitcoin remains in an uptrend, it is under severe pressure and has violated its trend and the expected counter trend consolidation. So, its bias is bullish, but with its well documented ability to lose huge percentages of its value very quickly, its currently a dangerous short term play to go long.
Full disclosure: I have a position in BTC in cold storage that I never consider trading. HODLers hold. Its what we do. Posts on this site are focused on shorter horizon trading aspects that may or may not get confirmed by future price action. God knows, not me. I was very surprised $9150 was violated, for example.
My thesis is that COVID-19 is an awful flu that is feared more for its unknown impact to the economy and everyday life than the actual disease impact itself. My approach to investing in this chaotic period is towards the bottom of post.
Markets hate uncertainty, and there is no historical model available to attempt to model the potential impact of this form of Coronavirus. Latest data suggests that container ships arriving in China was down 30% compared to same month last year. China is the worlds builder of “stuff”, and the US its best customer. The movement of that ‘stuff’ is clearly dwindling rapidly- which portends a significant global slowdown.
Lets look at rough numbers:
|Market||Change from latest high:||Why?|
|Dow Jones Industrial Average||-13.80%||Fear of unknown|
|Nasdaq Composite||-12.50%||Fear of unknown|
|Asia DOW Index||-10%||Fear of unknown|
|Nasdaq Europe||-12.80%||Fear of unknown|
|Gold||-5.30%||I don’t know|
|Silver||-12.20%||Fear of industrial demand drop|
|Bitcoin||-19%||Declines started before COVID Panic hit full force. Unknown why it hasn’t reversed. Seems to be a “sell anything with a Ask/Bid mentality”|
In theory, as the global markets turned south, Precious Metals and ‘Digital Gold’ should have appreciated in value. What we are seeing in all markets currently is a flight to liquid fiat. Concurrently, markets are expecting a Central Bank global intervention reducing interest rates. The world is already awash in paper money and its derivatives! No form of currency has ever cured a disease! This is a nonsensical, “lets do something to look like we are doing something” self distructive trap.
As indicated in Para 2, the world might be facing a Supply Shock of goods. Last one I remember was the 1973 Oil Embargo, the 1979 Oil Crisis and then the impacts of the Hunt Brothers trying to corner the Silver market in the late 1970s. Supply shock brings panic and reckless behaviors out in the most rationale of people. A supply shock in tandem with a flood of paper money is a recipe for an inflationary spiral. If inflation gets out of hand, most of the governments of the world to include the US will face an existential crisis. A huge portion of the US debt is in short term notes, so inflation will significantly alter its ‘refinancing rates’. A spike in inflation may become an existential crisis to fiat currencies on a global basis.
My ST investment Equity Market Strategy is to maintain my SQQQ and TECS (inverse ETF) positions. The market should bounce up before falling further and setting a bottom. This is not a time to be hoping for a “V” shaped bottom. It won’t happen. If you are not currently Inverse, its prudent to wait for a move up before betting on further drops. Assume that this weekend that all the global financiers and bankers are trying to plan a market intervention intent on pushing indexes up in order to soothe fears. I expect a move higher in equities starting Monday. Due to the never ending stream of bad news / COVID-19 Panic, that may not work.
My ST Precious Metals Strategy: (not physical here- market related assets like SLV, GLD, PAAS, JNUG, NUGT). I was stopped out of all of my PM positions in last 2 trading days. Gold: Anticipate continued weakness. Silver: Expect heavy short selling. Remember that in 2008, $SILVER futures were pushed down to $8. If silver gets anywhere near that level, I am backing up the truck & going all in.
Crypto: Wait and see from the sidelines. Will do a BTC, ETH and LINK update this weekend. Crypto is a hopeful asset, in that these assets are not fully established as legit and for the average Joe to put hard earned money in this seems a gamble. Since average Joe is getting more fearful by the day- lets assume that new money will be unlikely to enter this space in the short term and what we will be seeing is mostly current participants trading in and out of fiat in a zero sum game against each other.
The reaction to the Trump COVID-19 press conference was immediate & came before the bad news of a case in Cali where the manner of virus acquisition was unknown. The US Futures fell sharply and the Asian markets opened, down again. A decent article on the cause of continued market weakness is here: https://on.mktw.net/2VmiizX
An un- synchronized Federal response with the VP ostensibly in charge, but without a mandate and more importantly without power of the purse to fight the COVID-19 issue was not what the market wanted to hear. The VP is knee deep in re-election efforts. To lead a task force, one must be free from other competing distractions. Trumps primary thesis was we should hope this virus just passes us over. Family’s can hope. Sometimes that is all they can do but pray. Governments on a macro scale need to act, not hope.
Bottom line: COVID-19 isn’t going to kill you. It is prudent to assume a Supply Side shock is coming & way of life changes will happen. Why? Public fear and government inaction. Increase acquisition of larder, masks, gloves and non / semi perishable OTC products that will probably become in short supply if / when a panic sets in.
Investment vehicles to consider: Netflix and Amazon are a good start. They are extremely successful already and virus fears should further spur ‘stay-at- home” lifestyle choices.
The Nasdaq Composite Index closed today near session lows at 8965. While it may bump higher ST next significant support is at 8494 and then at 8069. Those would be drops of -13% and -18% from all time high. $COMPQ has already lost 9.2 % from ATH, so neither of these are a stretch.
If this was a normal correction, I would be looking for upside from current levels. The index has fallen hard and fast and usually one can expect a bounce. COVID-19 has too much of an X factor to potential news at this point that the sidelines are a decent place to sit, rather than anticipate a rapid “V” shaped turn around now.
BTC in last few hours has fallen sharply on light volume. In January, Bitcoin went up and it was partly credited by pundits to the coronavirus and a demonstration that bitcoin has become digital gold. Based on the relatively low volume in recent hours, that argument remains a question mark. The drawdown will probably reverse near the established price channel.
<< This chart is a day old, but the pop over 10K in last few hours remains meaningless short of a real move over 10,190.>>
BTC chart is displaying a complex Head and Shoulders pattern that has yet to confirm by a violation of the neckline by -5%. If it does fall below that point, it may free fall even lower.
It is very common during drawdowns for investors to miss opportunities. Especially the Hodlers. To avoid pain caused by falling account balances, they tend to ignore the market until good times roll.
Drawdowns are the time when one should actually focus more on the markets. When things go on sale- the ones with relative strength (RS) become more obvious. Those with great RS perform much better than the average ones in the next uptrend. While doing that, LINK has peaked my interest and will dig deeper . The current price action is reminiscent of ETH in the early spring of 2018.
Position size review / reduction of both BTC, GBTC and alt coins prudent in light of current technical weakness
Bitcoin is executing an orderly uptrend. In the near term there are few red flags indicating a downtrend might emerge. Also, there is no evidence that a “moonshot” or parabolic spike is in the making anytime soon. That is good news. There are an increasing number of BTC bulls that are convinced that the next spike is imminent- at least according to a scan of YouTube click-bait.
The case for it not spiking and continuing to stair-step is that this is sustainable. The longer it is sustained, the better a launch pad it is for the next spike. In the last few weeks of the 2019 rally, BTC shot up 65% from $8k to over $13k. Not a parabolic spike, but a huge move. Problem was, it started from $8k and ran out of steam. If BTC had a 65% move from its current price ($9857 (02/10/20 UTC:1700)) it would reach $16k, which is a major resistance zone. Again, it would probably run out of steam and fall. Ideally it climbs past $13k before having a large gap- up. That would likely be sustainable rally to a new ATH.
I suspect BTC will again suffer a parabolic spike, probably in the next 12 months. It will happen probably like the last time- driven by FOMO once it rises significantly above its last ATH. Be aware- based on historical pattern its likely to hit a new ATH at least 20% above previous and then trend sideways / sightly lower for 3-9 weeks while it consolidates gains.
Bottom Line: Chainlink (LINK) is most bullish, relative to Fibonacci Retracement. The reason is that is has moved significantly above the 61.8% level. From the perspective of this indicator- there the Jul 19 high is the next major resistance level.
Bullishness in order: Chainlink, Bitcoin, Ethereum, EOS, Tron (TRX), LiteCoin (LTC), Ripple Labs XRP (not shown).
Bitcoin moving over its 50% level is a sign of strength. The remainder are struggling at the 38.2% level. Ranked EOS ahead of TRX simply because it hasn’t lost value since hitting the level. The fact is the last four are laggards in terms of Golden Ratio ( https://preview.tinyurl.com/7vkpugr ).
Sympathy for the laggards: Since crypto price is symbiotic, particularly relative to Bitcoin price, a solid argument can be made for shifting some towards the laggards since they do tend to price appreciate later in a bullish bitcoin cycle.
Greyscale Bitcoin Investment Trust (GBTC) is a U.S. exchange based trust that represents a fractional amount of Bitcoin. For details, see: https://grayscale.co/bitcoin-trust/
GBTC has many downsides to just outright owning Bitcoin, but it has convenience and also can be placed in retirement accounts. GBTC is a derivative investment- so charting it has risks not inherent to the underlying. Because GBTC trades at a premium (that shifts constantly) to the price of bitcoin, it is a great indicator of the opinions of stock market investors.
Update to the Relative Strength Indicator / Williams %R and re-worked the support / resistance levels
Range bound trading in BTC continues with a test in last 24 of support at previous resistance level.