In the meantime, I can't resist a moment of market commentary. During my writing break, I’ve only lightly paid attention to the markets, but I haven’t been involved all that much because I can’t seem to be creative and have risk on at the same time. I like figuring out the ever changing puzzle of the markets, but I don’t really like the emotions of big position short-term trading anymore. I’m thinking about trying to automate a few of the strategies I use, or become more of an investor with longer time frames and smaller size. Peace of mind is valuable.
One quick thing about Bitcoin. You shouldn’t believe this because I didn’t post it, but I called the top to my dad nearly to the day. I only bring this up because the reasons why still exist and you should consider them. However, you should also consider that I came to the conclusion that Bitcoin wasn’t going to work when I found it at a dollar. It’s the single biggest mistake of my trading career, and I might have adjusted if I wasn’t so deep into writing the last few years, but the point is I’ve been wrong about Bitcoin since its inception. Keep that in mind. Also, I’m not a conspiracy bug, but I do recognize the reality that there are powerful forces who don’t want things to change, so it’s kinda naive to think they don’t at least try to influence things.
I told my father the worst thing that could happen to Bitcoin is a futures market. I believe the rapid rise in November into the opening of the futures in December was the market makers acquiring inventory at any price. This serves several purposes. 1. It allows them to take on the short side of futures with little to no risk. 2. It extends a parabolic move exponentially, which makes it easy to shake out anyone buying at those levels, which amazingly people do. I know three totally separate people who have no interest in financial markets who asked me about Bitcoin the week before the futures opened. I refused to give them advice, but I pointed out that I don’t own them for a reason, and yet I’ve been wrong for 8 years. In the end, I believe I’ll be right, but what difference does it make if I missed out on the greatest wealth generator of my lifetime? Two of them bought the highs. Maybe it works out for them, but it shows you the psychological pressure FOMO puts on people. Same thing happened in the stock market in January. Same thing happens in short-term trading all the time. It takes enormous discipline to not get involved. You have to make that mistake over and over until the market teaches you otherwise - the hard way. Then it goes on a run that never lets you in because you learned not to chase. It's a stupid game.
Anyway, so the market makers buy up all kinds of Bitcoin inventory and then take the short side of the futures trade for the chasers, assess the strength of the market and realize it's weak, then sell their digital Bitcoins near the highs of the blowoff top they just created, force the market down, buy the Bitcoins back at the lows, shake out the futures shorts, push the market back up both in futures and the Bitcoins, then cap it and repeat. Do you know how easy it would be to control this market? Even if there’s no nefarious conspiracy, whoever the market makers are saw an opportunity to profit and they are crushing it, I’m sure. Does this mean every rally will be capped and it’s the end for Bitcoin? I have no idea. Again, I remind you that I passed on it when it was a dollar. I'm an idiot. Truly.
I don’t want to cause anyone FUD, which is ridiculous, btw. Fear, uncertainty, and doubt is the entire game of risk. If you don’t have FUD, you’re not paying attention to the risk - both the initial risk and the unrealized gains. The hardest part isn't the losses, it's what to do with open profits. The game of trading and investing is developing a strategy to deal with and overcome the FUD both in your head and from the people who believe the opposite of you. The only way I’ve found to deal with FUD is taking ¼ or ½ off and letting the rest run until the market structure of price action dictates you’re wrong according to some kind of objective rules that override your emotional bias. Sometimes you get shaken out of winning hands, but the consequence of not taking any profits is watching your entire unrealized gains go to zero when you're wrong. This is why the game of trading and investing is one of dealing with perpetual disappointment. You will either exit too soon, or too late. It’s just the way it is. There are certainly rare times when the market makers are wrong and get forced to cover - for example, what if central banks decide to use Bitcoin as a settlement network? The market makers go scrambling and Bitcoin doubles overnight. My personal belief is that science has yet to develop technology capable of measuring how small the chance of that happening is. But what do I know? I passed when it was a dollar.
Here's a few charts. I’m not posting for the first time in over two years because I suddenly have great certainty about what comes next. It's just the timing of the end of my writing phase. However, there happens to be critical moments coming up in all of these markets, which I will point out below.
The dollar is coming into a dual support zone. Since this has gone straight down for over a year, you have to be careful of a reversal bottom, which is the theme of this post: beware of reversals. If there's a hammer on the daily or weekly charts, you have to respect it, even if it makes no sense. Sometimes those reversal candles make great risk/reward setups if they happen right. Other times it's best to wait for a higher low to get put in, or the downtrend line to break. There's really only two kinds of trades: breakouts; and reversals. I find it's best when these things happen around a surprising news event like a jobs report or a change in Fed or ECB policy. Maybe it's an inflation print. Either way, all these markets are at potential inflection points.
Dollar monthly.
Dollar weekly.
Dollar daily.
Euro monthly is consolidating at the edge of a significant breakout. It certainly looks like it wants to breakout, but I'm suspicious. I think breakouts need to prove themselves right now.
Euro weekly.
Euro daily.
Gold weekly. Obviously, this is dependent on the dollar. In full disclosure, I'm long gold right now, but I'm looking for a reason to sell into a breakout. If there's no reversal I'll stick with it. But I don't mess around with breakout reversals in patterns as significant as these. These markets need to prove themselves. It feels early, but I am open.
Bonds weekly. Check out this trendline. I know fundamental guys want to think technicals don't work, but come on. It looks like it wants to backtest the head and shoulders breakdown, but then watch out. I'm not making any predictions, but later this year and through the next few years a massive supply of bonds is available and we haven't ever seen the infrastructure bill yet. In my opinion, the long end has nothing to do with interest rates rising, or the anemic inflation that is dependent on a falling dollar and not organic growth. Bonds are weak due to over supply and the fact that the Fed is a seller and not a buyer.
Oil monthly looks like it wants to rally to the downtrend line and horizontal resistance, but you have to respect a new daily high that reverses. There's RSI divergence on the weekly and daily charts, which is often a red flag, but the monthly chart still has room, so it's hard to say. What the dollar does could make the difference.
Oil weekly. RSI divergence.
Oil Daily. RSI divergence. It's just a light warning of potential trouble. There needs to be a breakout and a reversal for it to mean anything.
ES monthly. The bull market is still alive and well until this uptrend line gets taken out on a weekly or monthly basis and there's a long way to go to even test it. We could technically enter bear market territory without losing the uptrend line. That's how parabolic this got. I can't imagine a scenario where there isn't another strong rally from either the 2016 highs or this monthly uptrend line dating back to the 2009 low. Note the extreme RSI reading on this monthly chart. If we make it back up to the highs any time this year it's going to put in a massive divergence that should be duly noted. It's not like RSI divergences work all the time, but when they do and you ignore it, it's usually a horrific experience.
ES weekly. You always have to keep in mind that the stock market is the biggest piece of shit market on the planet. More than any other market it will do the nastiest possible thing at all times. I would keep a very close eye on a break of the Jan lows. If there's a V shaped hammer reversal on the daily or weekly chart, there's no choice but to trade it as a bottom. It might not happen or hold for long if it does, but that's how this idiot market acts. I'm leaning toward an eventual test of the 2250/2300 area, which would be the best buying opportunity of the next year, but we might need to make it difficult by putting in a short term reversal to rally back to resistance first. We'll see.
Look for my article next week. Most likely, I won't be posting again anytime soon. Best of luck to you.
I assume everyone who used to read this blog already knows these people, but just in case:
Hashgraph - as far as I can tell this technology is way better than blockchain. In my article next week, you'll see why I don't think distributed public ledgers have any place as a currency, but this has a lot of use cases running in the background as a trust layer on the internet.
Hashgraph
Hidden Forces Podcast - I heard of Hashgraph from Demetri Kofinas, who used to produce Capital Account on RT. This is his podcast. Lots of interesting topics.
Hidden Forces
I assume everyone knows Mike Maloney and his Hidden Secrets of Money videos:
Mike Maloney
And Rao and Grant at Real Vision:
Real Vision
And the Peak Prosperity podcast with Chris Martenson:
Peak Prosperity
And the Macro Voices podcast with Erik Townsend.
Macro Voices
And Kevin Muir, the Macro Tourist:
Macro Tourist
