What I'm watching in the markets

These are some rather rough, perhaps unprecedented, times.

Times like these is why I wanted to learn about trading. Important events, the way the market interacts with them, decisions made by central banks, the balancing act between politicians and the people, the sentiment of the people around me as well as my own, the seemingly perpetual fear & greed cycle that lies within human nature. I genuinely find the market one of the most interesting things in the world.

Now before I start, this is not financial advice, I am not a financial professional and this is for entertainment purposes only, as should be obvious from reading other blog posts.

In summary and without going on political rants, the post-Covid monetary stimulus era has come to a halt, in an attempt to get inflation under control. Policy makers are essentially being forced into a sort of reverse Sophie’s choice between inflation and a recession, arguably with a small chance of now running the risk of both at the same time.

In the crypto landscape specifically, on top of this treacherous macro-economic climate, you can add to the list: the implosion of the Luna UST stablecoin, strong signs of insolvency from even well-trusted companies like Celsius, Coinbase rescinding past hiring offers, as well as multiple large funds overstaying their welcome now running the risk of liquidation. It ain’t pretty. I’ll elaborate about the need for regulation another time.

Historical times. I am fortunate that I was largely out of the markets since December and to have gotten out of this unscathed. My heart goes out to the people affected by this.

Personally, these super volatile times make me a little fidgety and a little impulsive, making me over-trade. In stead of patiently waiting for moments of truth, I often end up giving a bit of money back to the market slowly but surely, simply by being too active. As I am aware of this flaw, I decided to start learning Python (way overdue) and spend a few hours a week as a member of the board of a small IT Security company, to be able to zoom out a little bit more, in times where it will be crucial to do so.

Historical market events might make for a historical opportunity at some point. These are the times where it pays to pay attention. Some people want to ‘buy for the long term’, and unfortunately a large part of those people do so when prices are frothy. If you really want to buy for the long term and exact entry prices don’t matter as much to you - these are the best times to start contemplating buying, rather than when everything has been skyrocketing for months on end.

I think that at this point, the bottom if you will, is not yet there, but there will be many opportunities along the way. The bottom is not only a price, it is also a process. A process that takes time, market participants leaving the market, others joining, bounces along the way that make you think the bottom is in, only to retrace and make new lows, certain asset classes diverging, etcetera.

I am not really a long-term guy, more someone who looks for cycles, and that means I have to pay attention especially, as the current cycle is now moving to ‘extreme on the downside’ territory, perhaps paving the way for the market to heal and other cycles to begin one day. That’s precisely why I filled my schedule up with other activities. Either this is certainly not a time to trade because it is dangerous - or it is, in which case the positions taken shouldn’t be overly managed.

Anyway, charts. What I’m watching the most:

EURO/USD: I have posted this chart in a previous post and these two black lines still delineate important levels that have capped the EURO/USD rate on multiple occasions over the last decade. The Euro is now potentially losing this range to the downside. This doesn’t mean I make predictions. What it means is that under this black line, I want no Euros. Back above the lower black line, one could argue to take a long trade to the other upper extreme, with a stop-loss below the lower extreme. In any event, the EURO looks very weak and being too exposed is risky in my opinion.

For the Fibonacci people out there: Drawing a Fibonacci retracement on the S&P500 from the Covid lows to the All-Time high, we are now at the 0.382 retracement, in very oversold conditions. Hold here and I think a rapid bounce is due. Lose this level and all bets are off again. (FYI, the black line that doesn’t have any numbers delineates the lows that were set on the day of the Russian invasion of Ukraine. A potential target IF there is a bounce.)

The VIX. They say charting the VIX is a faux-pas amongst traders. So I’ll just say this: for the market to have some relief to the upside, this thing needs to come down.

Bitcoin. I’ll be the first to admit that Technical Analysis has its limits in times where funds are blowing up, it’s unclear who needs to sell how much, who gets margin called and when it will stop. So it should never be trusted blindly. But we can still look at where we are: price is at the 200 Weekly Moving Average (the black line). This line is interesting. It capped the price in the bear market of 2018/19. It marked the Covid Crash low. Also, it has never trended down. And we are there now. That doesn’t mean price has to bounce, at all.

What it means that if price doesn’t bounce, it would be very notable. Add to that the RSI being oversold on the weekly even more than the bear market low or even the Covid Crash (see red circles below) AND price trading around the 2017/18 All Time High of 20.000$ and you basically have the perfect confluence of three elements for a long setup. This doesn’t mean that one should buy here. Bottoms take time to form. What it does mean, is that if price doesn’t meaningfully bounce here, it would be unprecedented and would be very informative. If even the most bullish setup fails, perhaps it makes a great bearish setup. For what it’s worth, Ethereum is trading below it’s 2017/18 highs since a few days ago. If price does hold here, well, a sizable bounce is to be expected.

Bullish setups slowly forming. If you were successfully short the whole way down..do you close here? If not, what are you targeting? Is the easy trade then just to short as well? Should you sell here if you haven’t sold yet? Gun to my head, probably not, but do yourself a favor and look away while the bleeding is going on.

Oil. The poster child of consumer sentiment as well as the Ukraine war. I don’t have any strong opinion. If it goes down that would be signs of inflation waning and perhaps good news for other asset classes, but if it goes up, it may just very well be a good trade to take, aligning with the trend and betting on rising oil prices. This feels like a pivotal spot.

There is no need to trade or invest. In unprecedented times, better to be cautious and ‘late to the party than to show up to the wrong one’. One of my biggest flaws is that I am often impatient. More than any other time, it feels like this is the time to wait for the market to tell you what it wants to do and to move extremely slowly, because even if this would be the bottom, there will be ample time to position for new secular trends. Not a big Buffet fan but this quote is truth:

If you want me to look at a specific asset, don’t hesitate to let me know and I’ll do my best:) Good luck out there.