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Trouble in Crypto-land?

Remember the 1990s?  When any  company with a newly-invented basic website was bid up up and away even though it has no earnings nor any prospect of any?  Even stolid old Auntie BT  (with earnings) was swept up in the mania. Now we see that period as a mania, but few did then. Well folks, today we have an almost identical mania going on in Crypto-land.

There is a nice quiet little company in the US making beverages called the Long Island Iced Tea Co (the traditional drink contains no tea and is in fact an alcoholic cocktail).  Last week they decided to jump on the crypto bandwagon and change its name to the Long Blockchain Co – and this is how ‘investors’ responded:

What a joke! Overnight, it has become a high-tech four-bagger!  Well, if I could gain 400% in my wealth just by changing my middle name to ‘Blockchain’, I certainly would.  So have we finally reached peak insanity?

But curiously, this happened on the same day (yesterday) Bitcoin and the other cryptos finally heard the penny drop and plunged some by 50%.  What the heck are they putting in their iced tea?

Was that latest bout of insanity the bell rung at the crypto top?  Blockchain is the new dotcom.

From its near-$20k high last week, Bitcoin has lost at least $160 Billion (more than twice Tesla’s market cap).  This is how wealth is destroyed in Crypto-land.  But we have been here before, but on a much smaller scale.  BTC has suffered several crashes since 2009 and this is the latest.

Here is my roadmap for BTC

Crucially, I have a clear five down count off last Sunday’s top (BTC is heavily traded in China on our weekends) with five down within waves 3 and 5 which obeys the usual Elliott principles..  Wave 5 appears to be a spiky selling climax and now I expect a three waves up to either the Fibonacci 50% or 62% levels as marked.  If it can manage the 62% level, there will be very sturdy selling and drive it down hard.

But failure to reach the 50% level around $15,200 would be bearish as selling pressure would be proven to be intense.

One other factor that points to a major top is the plethora of super-bullish forecasts as the price rose to the $20k region.  Here is just one from seekingalpha.com

$50,000 by end 2018
$100,000 by end 2019
$400,000 – 500,000 by 2022 – 2023
How”s that for confidence?  Of course, the pundit had excellent logical reasons and it would be easy to go along with it (especially if you owned BTC!).  With this analysis, was it prudent to buy near $20k, seeing the price collapse right afterwards?  Ouch.

 

Silver starts to shine

I trade both gold and silver and have found silver provides me with larger percentage moves often.  The downside is that it can be much more spiky than gold and protective stops can be touched more frequently. In this case, I watch for a move back through my stop and take a new position.

It is said that Bitcoin is the new gold.  I disagree.  Until the recent low, gold had been trading lower as BTC rallied and many assumed money was flowing out of gold ETFs and going into BTC ETFs.  But that process was reversed last week with a vengeance – and silver is feeling the benefit.

No, gold is the new gold (as is silver the new silver).

The market was in a clear downtrend off the late November high but I believed that was a correction to a bull trend.  Here are my Elliott wave labels on the daily silver chart

Earlier this month, I was able to draw a trendline across the major highs and then a parallel tramline across the red A wave low..  Its projection into December took it to the 15.60 area and that was where I started looking for a turn back up from my purple B wave low into purple wave C.

And I was using my trusty 2-hr chart with momentum indicator – and here is the action around 13 December

I was able to draw a small scale pink trendline above the minor highs and when I noted there was a strong momentum divergence at the 15.62 low, I set a buy stop order just above the pink trendline to catch any thrust above it.  And that simple little action got me into a low risk long trade just prior to the strong thrust to the 16.15 area.

And since then, the market has advanced to the current 16.36 level – 60 pips above entry.  Of course, having a winning trade is only part of the story – each trader has an ongoing need to ask questions about when to take profits (as Bitcoin traders certainly did last week in spades!).  It’s no good seeing a trade rack up profits only to see them disappear on reversals.

That is why I developed my Split Bet Strategy that members of my VIP Traders Club employ.

Most traders become more confident of further gains as prices rise.  That is basic human nature.  But good traders over-ride this feeling and have trained themselves to become less bullish as prices rise – and look for a sensible place to at least consider taking some profits.

 

Stocks had a fabulous year

I will expand on that theme in my final post of the year next Saturday.  In the meantime, I am wondering what the sudden collapse in Bitcoin last week is telling us about the outlook for the Dow/S&P/Nasdaq?

Since this year’s booming stock markets reflect the very bullish social mood during 2017 and that mood has propelled cryptos to the stratosphere and beyond, are stocks poised for a similar reversal?

It appears the Bond Bubble is resuming its bursting with long term yields sharply higher last week and rising yields do not help the stock bull case at all.  The age of super-low yields and hence borrowing costs is coming to an end.

And now the US tax ‘reforms’ are into law, is social mood reaching a peak right at year-end?  After all, we are passing through a turning point in the sun’s trajectory at solstice where humans’ personal mood is at its lowest prior to the uplifting thoughts of Spring – and brighter days – in the Northern hemisphere where the vast majority of traders reside.

In the Southern hemisphere, spirits are at their highest at mid-summer, but few market-movers live there!

So it is possible stock markets can make a major turn around early January (if not a little sooner).

In the meantime, we at VIP Traders Club are short term trading the indexes and here is a possible roadmap for the S&P

Note the multiple touches on the blue trendline validating it as a line of support (so far).  The latest  touch occurred yesterday. If this scenario pans out, I expect a thrust up next week into new highs in the final wave 5 that should top all other fifth waves.  When that point is reached, I expect a hard thrust down below the blue trendline to confirm the overshoot I have been referring to in previous posts.

If we do see an overshoot, it will signal a trend reversal – with dire consequences for the bulls.

 

Wishing my readers a very Happy Christmas and a most Prosperous New Year!

 

 

 

 

 

 

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