Margin Rich

I Don’t Know Why I Talk About Crypto in a Public Setting

Posted on August 30, 2021 by Margin Rich

0 for 2. That’s my hit rate in publicly forecasting bitcoin price action. Crash & burn.

Can’t get everything right. That’s trading. You just have to manage risk within your directional bias regardless of the asset class.

If you read my piece from mid-July on BTC, then hard and major props to Katie Stockton and her team at Fairlead Strategies. They literally bottom-ticked the bitcoin price.

Although from a short-term standpoint I’ve made a couple of idiotic calls on BTC, I firmly believe in the long-term potential of blockchain technologies’ disruption.

“Metaverse” is being bandied about lately as if the Oasis will be online by Christmas, but that is a major, major area where blockchain tech has the potential to install itself at the heart of a new-ish digital economy.

And if so, then early on it appears Ethereum may be the killer app. Too early in the game to tell, but ETH looks like the stallion to bet on based on wide usage as the foundation for so many trustless applications. It’s not about investing in a “currency” to replace the USD. It’s about investing in the future of commerce.

Or at least that appears to be the path. Why else would the largest of largest Silicon Valley angel veterans be investing in the space? They don’t appear to be worried about contributions to the “enabling” of cybercrime empires.

To crypto nubes, maybe this is enlightening. To crypto vets, this is all old news.

Now let me take another shot at a crypto price projection and see if I can’t get my batting average up to .333. Worse case, my commentary can be readily identified as anti-correlated to BTC & ETH price action and I go 0 for 3.

TradeSmith has a timing service for assisting with forecasting various asset classes. The premise of the service is that everything follows a cycle. Everything. And once a cycle is recognized then TradeSmith’s software can make a best guess on future price action.

Below is a chart of the Grayscale Ethereum ETN (ETHE) using that forecasting tool. It’s not about amplitude; just general direction. The composite forecast line (purple) shows an interesting set-up for the ETN. Observe the green lines denoting the upward advance within the last 2 cycles.

Are we on the verge of another possible run upwards in Ethereum? Current action and sentiment sure seem to be lending themselves to the notion.

After recently commenting on Mark Zuckerberg and Jack Dorsey to Bloomberg, Vitalik Buterin’s shared a vision for ETH:

And he continues to have big plans for the Ethereum network. When asked where he sees it in five to 10 years, Buterin replied, “hopefully running the metaverse.”

The Best Part of Waking Up

Posted on July 22, 2021 by Margin Rich

Wow, what an ignition for coffee. This all-important soft has shot up a rough 20% in three days as of today. That’s smoking momentum.

Props to those who are grabbing or grabbed a piece of that squeeze.

However, capital is nervous these days. One can feel it across multiple asset classes and sectors. That general nervousness could cause capital to quickly shift out of coffee and into some other asset bearing a superior portfolio correlation. The move this week feels like a firework as opposed to a rocket headed to the moon.

FinViz Daily Chart

And fireworks fizzle out. Now maybe this is a legitimate breakout. Destination? Moon. I don’t identify as a commodity market expert in any futures category so there are definitely legitimate fundamentals factors that I’ve spent zero time assessing.

In fact, I don’t identify as an expert in anything. I just like to surf the swells of extreme price action across various sectors and assets classes. Simple as that. Sometimes I win big. Most times I lose small. Just trying to net higher and higher.

Let’s zoom out to a monthly chart of coffee (FinViz Monthly with COT). The blue circles below show every time the big-money, savvy traders get a bit out over their skis against the smart-money commercials.

Over the last 16 years, it would’ve paid to heed this signal more often that not. In 2010, it was a total bust during that commodity super bull coming out of the GFC. But other than that, futures and options would’ve paid out nicely betting on a sharp change in trend.

I’m a simple man. Simple mind. Simple life. Simple trading tactics, and Puts on the JO ETF could provide a solid reward to risk if a reversal is essentially imminent.

The spreads suck, but there’s enough liquidity. If coffee is to see holders start grabbing profits just as fast as they’ve made them, then the zone highlighted in yellow below looks like a logical place to explore opportunities.

Ideally, we’d like to see profit taking tomorrow (Friday 7/23/2021), in order to add a wick to the top of the current weekly candle.

Again, beware of that price action in 2010. And the Great Mother asks you to kindly stop brewing your morning drug with single-use plastic pods.

Bitcoin – A Quick Technical Read

Posted on July 16, 2021 by Margin Rich

So the last time, I tried to seriously interpret BTC action in a public setting was 2017. Right before BTC decided to offer speculators a nifty little 10x return in less than a year. And I was not on the right side of that 10x.

Like many, I’ve significantly increased my education in the blockchain. I see and agree with the future of the potential. Not necessarily in agreement with the anarcho techno-extremists, but clearly an enormous amount of innovation in the space is going to go mainstream in the coming years. It’s like Pandora’s Box. Can’t be closed again.

Because of it’s ability to attract those looking for an easy score coupled with everyone being a “Market Wizard” thanks to the internet (including A-holes like me), some action appears to be setting up in BTC. Observe.

Or maybe it’s a “vomiting camel.” Look at the most current weekly candle on the right of the chart. See how it’s breaking down through the shoulder-line. I suspect that cheap bit of technical analysis will cause a relatively quick descent into the $20k area; anywhere between $21k and $29k.

This will be the result of whales and algos drawing in the suckers, who arrived to the party far too late, to puke. I hypothesize, with zero quantitative support, that the $20k-ish price range in the gold oval above will draw in big money establishing a floor for the next move in BTC.

And I believe these moves will be hard and fast. A consolidation could then occur allowing time for new positioning, but I don’t think BTC goes sub-$20k.

This will in turn cause a selloff in all crypto-assets. And I think Ethereum could get sold off all the way down to $1200 but probably find strong support at $1400. Institutional support for the future of smart-contract based applications may set the floor at that $1200 to $1400 range in ETH.

Headlines from a few days ago like the following help to anecdotally support the thesis.

That bullish analyst quoted in the article was Kate Stockton of Fairlead Strategies. Have a read of her bio. About as accomplished as you can get for being a chartist.

I can only trade my beliefs about the markets within the edge that I’ve cultivated. I don’t see a bullish breakout yet. I see a falsely bearish breakdown, consolidation, and the beginning of the next leg of the advance. Handicapping future outcomes ain’t easy and trading imaginary patterns is typically a fast way to Lossville, so the price action is always the final arbiter.

Diamond hands and laser eyes aside, if you got some play-money then a better buying opportunity may well be on its way in cryptos.

Oil Taking Its Breather…Finally

Posted on July 7, 2021 by Margin Rich

For traders who’ve been waiting oh so patiently, it genuinely appears an oil sell-off has begun. Discretionary trading requires sound, subjective judgement which comes through diligent research and a practiced hand. Do I have any of that? It’s certainly questionable, but you’re here reading so let’s get to the squiggly lines.

There’s a massive confluence of moving averages, Bollinger Bands, and indicators on a weekly chart signaling a sell-off could have some legs, at least temporarily. Have a look at the monthly chart of West Texas Intermediate (LC). That horizontal yellow line represents a very good stopping point should momentum build to the downside as H1 P&L’s get protected.

A 20% correction in oil would not surprise me. This coincides with action and positioning in the US dollar. For event-traders, OPEC+ activity has definitely raised hackles so I suspect stops have been pulled up pretty tightly which can exacerbate a move to the downside.

On the monthly chart above, since the bottom of that negative-price move in April 2020, hi-to-lo oil is up 1000% in 15 months. It’s up 350% using closing prices, and hell, it’s up 135% since November.

We did get a 15% correction starting in March that began a little consolidation period from which oil has recently broken out.

I suspect that June breakout drew in a bit of newer capital that failed to position earlier and could be chasing in addition to pyramiding by existing position holders. Feels like a false breakout from that wedge. Commodities across the complex have all been taking breaks, but not the King of Commodities. Consolidation yes, but no true breaks.

I’m of the persuasion that a commodity super bull has legitimately begun. But that thesis ran so white hot with nary a breather, that now it’s time for the granddaddy of the commodity complex to kick up its legs for a minute. Any multitude of ways to go short.

One of the methods I like is Puts on the XLE. Vast liquidity with excess positioning will allow for a potent ROI on a well-timed swing.

That horizontal yellow line on the weekly XLE chart also represents another good confluence of moving averages, bands, volume@price, etc. Use any spread methodology desired within the options complex, but $45 looks like as good a point as any for a possible bottom and a consolidation to begin.

As usual, I’m handicapping here. This is a personal bet just for me and no others using my own proprietary methodologies that have consistently given me an edge. Risk management is always the key to a successful trade. I use a mix of technicals, fundamentals, and anecdotals that all get swirled around the noggin until the organic computer kicks out a trade suggestion just for me. Then I write about it on a site nobody reads anyways to help me flesh out and think about the theses a bit more.

If you’re somehow reading this content, it’s not a trade or investment recommendation. I’m just thinking out loud.

Commodities and stocks have just been on a tear in 2021. Performance as such for both the S&P 500 and BCOM has occurred a handful of other times in financial history. It tended not to bode too well for commodities over the next couple of months. Observe the following chart from SentimenTrader.

Sample size not withstanding, with oil and natty combined being the largest component of the BCOM, a short thesis just might profit.

Beware the Secular Trend’s Potential Short-term Counter Move

Posted on December 28, 2020 by Margin Rich

Right now the markets are at extremes. Essentially all of them. Current price action across a broad swath of sectors and assets classes strongly reminds me of the end of 2019 and beginning of 2020.

My gut tells me that a fear-event is near. And my gut is being primarily led by current action in the US dollar. Short positioning in the buck is extraordinary.

Yeah, yeah, macro-top-down, commodity bull, central bank largesse, and all that in regards to the USD but this is egregiously exaggerated. Not that it can’t get more extreme, but consider the following charts.

Seasonality, courtesy of SentimenTrader, tends to be pretty strong in January for the buck.

With currencies, large fast moves in a short period are atypical but we live in a time of atypical. Pairs always have to be acknowledged and the anti-correlation to the euro is at a bit of an extreme. In the last decade, every time the Euro to USD line (white-monthly) has approached 2 standard deviations above the 25-month MA, then it’s been go-time for a USD rally (green).

Does this mean a reversal is imminent? Nope. Does it mean additional portfolio hedging here is warranted? I’d say it’s a prudent use of capital.

The long-term case for the dollar’s demise is well documented. Goldbugs have been the longstanding voice of fiat destruction, but more recently, Ray Dalio has picked up the baton. Sam Zell has now officially thrown his name in the dollar-destruction ring with this recent quip.

The single greatest risk that we are dealing with today is the loss of the U.S. dollar as the reserve currency. If we keep doing what we are doing right now, I think it is 10 or 15 years away.

These investment legends are right. The USD will in all probability lose 30% to 40% of its reserve status this decade. And world markets as well as geopolitics will be volatile as a result.

Why do you think Bitcoin has jumped so hard? That’s institutional fear of central banking monetary policy, not retail FOMO driving Bitcoin. It’s palpable, but it’s ahead of itself in the USD and Bitcoin.

Nothing moves in a straight line and short-term counter spikes in any trend are as sure as sunrise. I’m not implying that a fear-event has to rival Covid’s March spikes or we’re at a long-term top in equities. Just saying that a short-term move to remove some excess is worth hedging at this point.