Tales from the Crypt was a cult horror movie from 1972 and also a US TV series from 1989 to 1996.  The latter started with a panning shot down the stairs to the basement of the decrepit mansion.  And with a severe bear market in the crypto-currencies currently, they too are headed for the basement of horrors.

I have long maintained that most, if not all, of the hundreds of crypto-currencies will end at precisely zero. The whole concept is a fad or mania that could only take off during a roaring bull stock market.  In such a trend, optimism in society rides high and the sky’s the limit for all sorts of ventures.

But when the mood turns negative, – as it is doing today -, optimism wanes and conservation and a scaling back of ambitious futuristic plans comes to dominate over time.

With Bitcoin – the market leader – now trading near the $7k level (down from the $20k high) which is a Fibonacci 62% drop, we really are in a bear phase.  All are in melt-down.

One sign of the change in sentiment is the sudden desire of the authorities to clamp down on the ‘Wild West’ unregulated aspects of the various exchanges.  That was entirely predictable as trading dollar volumes became non-negligible.   Here is one of the leaders, Ether

What a lovely outline of a mountain!  And that is not a bad analogy since you cannot climb any higher than the peak but must return down to the start.   We are almost there.  Most manias (or bubbles) end up losing 90% or more and that point would be reached at around the $150 area.

There must be very many who bought into the story last year in the ‘early’ days  and have ridden it up to the peak and are still holding in the hope it will somehow re-scale the heights near $2k – and beyond. The investment world is full of such idealistic people who get married to a story, take their marriage vows seriously, and hold on until death do them part.  And when the investment gives up 90%, they chuck in the towel sell in a fit of disgust, vowing never to touch cryptos again.

I call that the Grand Old Duke of York strategy who marched them up the hill and marched them down again.

Serious traders, on the other hand, will abandon a trade when it shows signs of it not going their way.  Our aim is to lose as little as possible on their bad guesses, as well as cashing in as much profit as possible on their winners before they start going bad.  This is far from a ‘set and forget’ strategy.

 

Tesla has run out of gas

This share has been a star performer and especially so considering it has never made a profit!  Investors have flocked to it as the allure of their charismatic CEO Elon Musk was just too much to resist.  He wove a magical story of being the dominant player in the evolving EV market and the biggest lithium battery supplier globally.

This was a story made in bull market heaven.  It had everything with the magic ingredient of being a disruptive force in an old industry and crucially, no earnings.  All the revenue was directed into research and production.  Musk raised billions from hopeful investors who herded together in the most intense way.

This has echos of DeLorian in the early 80s who produced a gull-wing car made famous by Back to the Furure movies.  That company lasted just two years and Mr John DeLorian passed into obscurity.  Hmm.

Of course, in a new industry, not everything goes smoothly, and Tesla has had its share of production woes and quality issues.  But until recently, that did not matter to the market.  All that mattered was the sunny uplands just over the horizon.

And that attitude works until it doesn’t.  And last year, it didn’t.  That was when I really started getting interested in stalking it for a campaign to short the shares.  I believed that of all the tech shares out there, this was one of the most vulnerable to a change in sentiment – and provide me with a large bang for my buck.  And that change was bound to arrive.  All I had to do is watch for the chart signs that the mood was shifting from ‘all news is good’ to ‘what a fool I was for listening to Musk’.

Here is how I did it

By October, I was able to draw in my pink trendlline connecting all of the recent minor lows.  I reckoned when the market broke below that line, it would confirm my Elliott wave labels on the way up which would confirm the new trend was down.  Another clue was the momentum divergence between the waves 3 and 5.

But I believed after the break the market would rally back to the line hopefully in a kiss before peeling away back down.  That is a normal pattern.  I certainly did not want to short this market too early!  Patience was required.

And my patience was well rewarded when in February the market did just that and kissed the line in the 360 area.  That was my signal to enter a shirt trade and I could use a close stop since a move above the line would likely cancel out my bearish scenario.

As the tech sector entered a period of intense selling in March, Tesla was pulled down as more recalls were announced.

The shares are currently trading at the $260 area – a full $100 below my entry.  Nice.

But now the wave pattern is not totally clear – we could be in a three down or a five.  And with the market very oversold, a bounce can be expected near term and I shall be taking some profit off the table.  But my near target is the blue tramline in the $220 area.