Not much has happened over the weekend so our previous article was and is still valid. I wanted to wait until the futures market reopened to post my next article. As of 1:30am NYT 0.21% the Dow Futures are slighly up at 0.76%, gold 0.52% has recovered 0.55%. From the chart below there was an original selloff at the open of trading but this was quickly bought up once again. As the Dow Futures market opened we saw a small dip followed by a spike and pullback, but has since started to trend up. Though this is the futures market I believe the DOW opens higher this morning. Why am I talking about the DOW here?
As I spoke last week there was a clear correlation with the spike in volatility and the correction in not only Bitcoin’ but with several other markets as well. Even the gold 0.52% market which is a traditional safe haven trade saw a short term selloff as high risk volatility traders were forced to sell assets in order to cover margin requirements. This left no market unscathed and actually started a snow ball effect which magnified the issue. As traders sold equities in the bond market, yields started to rise which kicked in algorithmic trading bots that further sold off equities to move into bonds at a discount causing market longs to have to cover and the selloff started to snowball. This is why I can NOT emphasize enough that trading on margin is extremely risky. Not that there isn’t a place for margin accounts, there is, but in high risk equities you are walking on thin ice. This is not selling cash covered put options on JNJ’ where you are willing to buy the stock if it dips below your contract price. This is highly leveraged risk assets that a small move can create a cascading effect like the one we saw last week. As a buy and hold longer term investor, I just simply rode out the storm and I will be looking to add stocks like P&G this week at a discount.
Bitcoin’ has recovered and though we expected it to pullback to the 7225 and 7885 zone, which are the 0.382 and 0.618 retracement levels of the recent bull move, the pullback was very shallow. A close above 8565 and continuation I will look to start adding longer term positional trades not only in Bitcoin’ but Ethereum’ and others as we set up for the next bull run. I will add there and a breakout of the 9838 level with an initial target zone of 13,000 to 14,500. Whether we hold there for the 17,000 level we will determine then.
Long term we have a target level of 20,000-24,000 which would complete the fifth wave of the overall broader bull run. Keep in mind these are preliminary levels and we will adjust as we move forward. On the bear side a breakdown of the 7225 level would bring into play initially the 5250 zone but also increases the possibility of an extreme low in the 4300 area. My personal opinion is this is highly unlikely, but is always possible.
In closing the past two weeks has shown us that retail and some larger investors are surely invested in the crypto market. The correlation among markets was as evident as it comes, as I posted in previous articles. This was a temporary selloff due to the high risk derivatives market and though we may trade slowly to the upside slightly horizontally, a break of 9838 will surely bring buyers back into the market. History has shown that market herds are generally wrong and this couldn’t be more evident in the impulsive nature to sell at extreme lows as we saw recently or buy into extreme highs as we saw in late December. Though we will never make every call perfect, we understand how these markets move and do not push the panic button.