If Everybody’s Thinking Alike, then…

While September’s seasonality, OpEx, and 7th straight month without a 5% dip has speculators on edge, if all the big banks along with many other outlets and mediums are calling for a correction, then can the markets have one?

Of course.  Just enough time has to elapse since the calls of the last week for one to begin.  When speculators have forgotten about the chance for correction is when a 5% – 9% dip can do its thing.

In the meantime, here’s a couple of opportunities worth considering regardless of where larger markets go this month.

Cannabis could be establishing a base from which to provide a nice little reversal trade.  Let’s look at a weekly of MJ, the largest cannabis-themed ETF by AUM.

MJ Before Bell (9-13-2021)

MJ seems to be finding nice support here at $15.  If it can bounce here, then $21 looks like a solid resistance point.  Between those 2 price points in the shaded area above is a confluence of various charting overlays & indicators.  Should that bounce occur, there’s any number of ways to structure a trade within that range to take advantage.

The CAGR vector for revenues, margins, FCF, etc. across the MSOs is looking quite enticing.  If the trading gods can deliver some political magic with a positive announcement of some sort around legalization, then you never know how spicy a trade might get.

And from the intra-week YTD high established in the 2nd week of February, MJ is down over 50%.  Regardless of any wider market breadth issues, it seems like enough capital has fled the category and is ripe for capital to bounce back in.  Overhead supply looks heavy between $22 – $24 so I wouldn’t get too clever pushing a move at the top of that shaded area.

The other potential trade setting up is in once white-hot Brazil.  Heavy amounts of capital shifted into Brazil on the back of the commodity thesis earlier in 2021.  It’s been shaken out a bit as EWZ has corrected 20% (intra-week) since late June.

EWZ Before Bell (9-13-2021)

It’s easy to see that the yellow horizontal line represents an important price point for speculators.  And there’s a confluence of charty shit, yada, yada, including a couple of intra-week bounces with longish wicks established in the past 4 weeks.  The chart tells me that a bet on a 10% to potential 15%ish bounce might be in play.  That’s just based on price action, but geopolitics and FX may hold more sway.  Further assessment of risk is warranted, but a surf-able swell may be setting up.

Based on all the Wall St. banks jawboning about market weakness in the past 10 days, it appears the Fed is attempting to lubricate the transition into a tapering environment and get a little correction started.  Just have to control volatility as an asset class and steam can be released with relatively little pain.  But markets don’t work like that, right?  Trade accordingly.

Volatility Interpretation

Volatility is a tricky asset class.  At least for me.  I’m sure quantitative methodologies utilizing various derivatives make it easier for the more mathematically inclined, but I do with what I got.  Chart interpretation is definitely more art than science, and I wanted to share what could be a set-up for a short-term burst in risk-off sentiment.

VIX Weekly (8-31-2021)

We’re only two weeks removed from that spike in fear that got everyone’s under-garments in a bunch.  Since April, the last 4 times the VIX spiked up resulted in intra-week advances but never closing a week above that top channel line.

Price action across all markets says to me that there is a lot of FOMO and confusion, as evidenced by declining or negative breadth and sentiment readings with new highs across various asset classes.

In order for a proper selloff across multiple asset classes, I’d like to see the VIX close out the week above 20.  Not a bear here.  Just positioned accordingly for some short-term profit should things soon get a little sparky for a minute.

The Best Part of Waking Up

The Best Part of Waking Up Attention Grabber

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 ChartFinViz Coffee Daily (7-22-2021)

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.

FinViz Coffee Monthly (7-22-2021)

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.

Stockcharts Coffee Weekly (7-22-2021)

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

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.

BTC Weekly (7-16-2021)

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.

Coindesk Lead AM Article (7-13-2021)

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.

Katie Stocktcon - Fairlead Strategies

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

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.

WTIC-Monthly-7-6-2021.png

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.

WTIC-False-Breakout-Weekly-7-7-2021.png

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.

XLE-Good-Bottoming-Point-7-7-2021.png

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 fuckin 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.

BCOM-Performance-After-It-SP-500-Kick-Ass-Through-Day-122-of-a-Year-July-2021.png

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