I have never really been that much into the idea of blogging, perhaps because I find it difficult to be consistent in doing tasks that are not mandatory. It has always been one of my main problems in life.
However, I have decided that I do want to be a bit more active on the financial side of things again, having finally recovered, mostly, from what was a devastating event for me, the removal of the peg in the EURCHF and suffering over 20% slippage on a levered trade.
Back to the topic, so it was an interesting January we had:
- Bitcoin @ 20,000
- DXY at a several year low
- S&P starting to attempt to over take 3000
- and a Blood Moon
Someone more into astrology than me will probably speculate that the 3% decline on Friday and the first 5% drop in well over an year in the market is caused by the Blood Moon. While I am pretty skeptical of all these things, there are a lot of people looking at them and considering the alignment with the end of the month we could have hopefully a 10-15% correction that would be buyable.
My opinion is the following:
The S&P500 is not done with the upside, my projections are for a move above 3,000, thinking 3300 to 3600 is viable. This might seem crazy to many but consider the following:
- Rates are extremely low even with the hikes last year. Additional 2-3 hikes of 0.25 basis points are not enough to produce significant outflow from stocks to other asset classes. Stocks might be overvalued by many metrics, but stocks aren’t overvalued to interest rates. At this point, the only sane thing to do with your cash if you have such at your disposal is to put it into stocks, neither bonds nor saving accounts provide any real value and thus I expect this to fuel further upside.
- Company earnings in the US are really fabulous. We can talk all we want about P/E and P/B and how their metrics compare on a longer term basis to prior bull cycles, but the data both macro and micro has been stunning. I can’t recall ever seeing companies reporting such huge revenues and profit.
- Tax reform by Trump is going to further improve corporate profitability and I think financials are going to benefit a lot from it.
- The USD has declined a good 10% at this point and this weakness cannot be understated when making a valuation on stocks.
Some stocks that I like are /these are my opinions and are not investment advise, if you make any decisions be so at your own risk/:
- Twitter, although I don’t like it as much at 27 as I did at 20. They have changed their ad model and I think they will produce some good results with the switch.
- Bank of America, everything considered it has a lower P/E to most banks and it will stand to benefit from the tax plan
- AMD – Crypto miners baby. The report this week was great and considering that nVidia is struggling with demand itself that basically guarantees a bunch of additional market for AMD, not to mention the Ryzen processors seem to be great in terms cost-to-value when compared to Intel! I think this one will be very good this year but we will see. I am even almost speculating on Apple acquiring the company although it doesn’t really need to, but considering the plan to spend 163 bln in cash that seems like a decent candidate. However, their focus on services might decrease that probability quite a bit.
- Apple – the P/E is pretty low compared to say Microsoft and it has 200 bln in cash. What is not like here? By any valuation metric that market cap of Apple isn’t that insane when you look at the numbers. Compare that to Amazon that is basically all about expectations, I can’t see how Apple isn’t a great buy. It has also underperformed the S&P by as much as 12%.
In the event that the Blood Moon produces a more significant decline keep an eye on the 2.5k level.
link for better view: S&P 500 daily view
S&P500 to Federal Funds rate – Clear pattern of topping near the high end of Federal Funds rate, we remain extremely low in rates and the correlation is clear.
link for better view : S&P500 to Fed Fund Rates
The dollar is a considerably more complex to discuss. First of all we have to be honest, fundamentally speaking the USD doesn’t have that much reason to go down, but it still is and thus we need to respect the words of Keynes “The markets can remain irrational longer than any of us can remain solvent”.
The data has been great from ISM, PMI to employment. Yesterdays NFP big highlight was the increase in wage growth and I believe that is huge for the stock market. Considering also that at this point most of the end of QE by ECB seems priced in and the hikes that are about to happen at these levels I am very clearly USD bullish. Key is risk management and sticking to as low leverage as possible, I don’t recommend any leverage over 5:1 for any non-scalping trades and even with that 5:1 is a lot.
I think that my view is best expressed by the following chart I am providing on the EURUSD. However, it should be noted that should the 1.265/1.27 resistance fail the USD will be in big big trouble. Retail positioning seems about equal on most brokers, however, volume has been pretty low, so it has been a slow grind on stops. Especially visible in the Sterling. I assume a good portion of the Sterling upside has been an orchestrated stop hunt by people with GBPUSD longs pre-BRexit vote to get out of, but that is a bit of a conspiracy theory statement so I won’t dwell into it.
link for better view: EURUSD daily
The sterling situation is fairly similar, with the difference levels a slightly harder to pinpoint. I am looking at 1.44-1.445 as very important levels, however, the strong bid from 1.4 cannot be understated. We need to break the 4h TL to confirm move towards the 61.8% of the 4H fib extension for at least a 3 wave down @ 1.392. Under 1.392 I would expect further downside to 1.36 at least, however I think at the current USD levels we could be in for a lot more, but time will tell and managing risk is the most important thing.
So everyone and their grandmother is a cryptocurrency investor nowadays it appears. The run to 20,000 was indeed amazing, however, let us take a look at the real downsides of that huge move:
- A lot of media attention, which sucked in a lot of people at the highs, very possible a lot of people took loans out to buy BitCoin and other Cryptocurrencies. Markets have a way to get people sucked in at tops and then get them broke and that is exactly what has happened here mostly. The result is a bunch of people have lost their life savings, some their homes and now the governments need to take regulatory steps. This has proven to be a big reason for the downside, however, this will ultimately be good for the industry in my opinion.
- Everyone is making an ICO, like everyone. People have attracted millions over night on a really bad project just as a result of the immense greed in the market. A lot of these ICO’s have been enormous scams. From Bitconnect to the ICO last week where some guys attracted 40mln in Capital and once the ICO was over they ran away with the money and left a nice message on their website saying “penis”.
- Ethereum has picked up in usage significantly, but Ethereum is cancerous to Cryptocurrencies unless some serious regulation takes place. It might really be the thing that orchestrates the demise of cryptocurrencies. The lack of any real concern from the developers about the scams going on is really worrying. Is it a great idea? Yes, it is. However, it is ultimately one of the big reasons for what is going on at the moment. Valuations just don’t make sense. Let me give an example. A token was brought to my attention January, that token was ETN. I looked it up. It was a company that raised 40mln in an ICO. Guess what the ETN coin market cap was? 800mln and at some point it went past a 1bln. This is a company that is for-profit, has 40mln in cash and has no business yet, valued at 25 times the cash it has raised. Very, very concerning.
So how does this all translate for BitCoin?
My main belief nowadays lies in BitCoin being the only crypto that has stood the test of time. That makes it unique in a way and very different from other cryptos. It is not the most innovative, it is not the one with the most tech, but it is the only one that has some confidence behind it.
Technologically speaking this is probably one of the most existing years for BTC since its inception introduction of Lightning network and many many more.
My personal belief is that if you want Cryptocurrencies there aren’t that many solid options and BitCoin is really, regardless of the argument it has no intrinsic value and can’t be a store of wealth with such volatility, the only solid one. I am excluding speculative plays on ICO’s here, because admittedly there are a bunch of real good business raising capital via ICO that can turn out immensely profitable.
Technically we are into big levels. We have completed A=C 3 wave retracements, touched the 61.8% line from 0 to 20,000 and we have seen some volume pick up. This is the moment of truth. I will refrain from giving anything trade related because the nature of the beast is extremely risk, but the levels here are a make or break. Find below the chart I am looking at:
I will be honest I haven’t looked too much into getting the wave count correct to the spot, but I believe it is fairly decent view. It is possible to see a spike to 6k, so that red box on the MT chart is very important. If we break under it I expect at least a retest of prior late 2013/ early 2014 high @ 1.2k USD or so.
I personally think BTC has a place in this whole thing and I do like the argument of it possibly being a store of value, specifically because if shit hits the fan, unlike with Gold you can actually easily transfer it and use it for payments, but regulations need to take place and volatility needs to drop first.
I hope you enjoyed this post, took me a good 3 hours to write all my thoughts downs.
BTC address is: